It is a term used to describe the rate at which inventory turns over or is sold. In other words, it’s a measure of how fast your inventory moves from the time it’s received until the time it’s sold.
It is important because it directly impacts your business’s bottom line. The faster your inventory moves, the less money you tie up in inventory and the more cash you have on hand to reinvest in your business.
What’s more, a high inventory velocity is a sign that your customers are engaged and interested in your product. This, in turn, can lead to increased sales and repeat customers.
There are a few different ways to calculate inventory velocity, but the most common is to divide your sales volume by your average inventory level.
For example, let’s say you have an e-commerce business that sells t-shirts. In a given month, you sell 1,000 t-shirts and your average inventory level is 200 t-shirts. This means your inventory velocity is 5.
In other words, for every t-shirt you have in stock, you’re selling five of them each month.
While there’s no magic number when it comes to inventory velocity, a good rule of thumb is that the higher your velocity, the better. Of course, there are always exceptions to this rule and your business’s specific goals will ultimately dictate what inventory velocity is right for you.
If you’re looking to increase it, there are a few things you can do.
First, take a close look at your product mix and make sure you’re carrying items that are in high demand. It doesn’t make sense to stock a lot of slow-moving items if your goal is to increase your inventory turnover.
Second, Review your pricing strategy. If your prices are too high, customers may be hesitant to buy. On the other hand, if they’re too low, you may not be making enough profit on each sale to sustain your business.
Third, invest in inventory management software. This will help you keep track of your inventory levels and make sure you’re not overstocking or understocking any items.
Finally, consider partnering with a dropshipper or other type of third-party fulfillment provider. This can help you free up capital that would otherwise be tied up in inventory and it can also help you get your products to market faster.
By following these tips, you can start to increase your inventory velocity and improve your bottom line.