Stop guessing — track these 7 inventory KPIs to reduce costs, improve cash flow, and make data-driven decisions about your stock.
Most business owners track revenue and profit. Fewer track inventory turnover or stockout rate. Even fewer know their carrying cost percentage.
That's a problem, because inventory is usually the second-biggest asset on a small business balance sheet — after cash. And unlike cash, inventory can quietly lose value while sitting on a shelf.
Here are the 7 KPIs that matter most for inventory management, with practical targets and fix strategies for each.
What it measures: How many times you sell and replace your inventory in a period.
Formula: COGS ÷ Average Inventory Value
Healthy range: 4-6 for most small businesses. Higher is better, but above 10 may indicate understocking. Below 2 means you're carrying too much slow-moving stock.
How to fix a low ratio: Identify your slowest-moving SKUs and stop reordering them. Run a discount promotion to clear dead stock. Set minimum reorder quantities based on actual velocity.
What it measures: How often customers try to buy something you don't have.
Formula: Stockout Days ÷ Total Selling Days × 100
Target: Below 2% for essential items. A 5% stockout rate on your top-selling SKU means you're leaving serious money on the table.
How to fix a high rate: Increase safety stock on fast-moving items. Set automatic reorder points with lead time buffer. Monitor weekly, not monthly — one week of stockout can cost more than a year of carrying extra inventory.
What it measures: The total cost of holding inventory as a percentage of inventory value.
Components: Storage (rent, utilities), insurance, labor, opportunity cost of capital, shrinkage, obsolescence.
Typical range: 20-30% of inventory value annually. If you hold €100,000 in inventory, carrying costs run €20,000-€30,000 per year.
How to reduce it: Consolidate slow movers into fewer locations. Negotiate shorter payment terms with suppliers to reduce cash tied up. Improve accuracy to reduce safety stock buffers.
What it measures: How many days, on average, inventory sits before being sold.
Formula: (Average Inventory ÷ COGS) × 365
Interpretation: A DIO of 60 means inventory sits for two months before selling. Lower is better, but very low DIO (under 20) risks stockouts.
How to improve it: Same levers as turnover ratio. Identify the items with the highest DIO and decide: discount, bundle, or discontinue.
What it measures: The percentage of customer demand you meet from available stock.
Formula: Orders Shipped Complete ÷ Total Orders × 100
Target: 95% or higher for most businesses. Below 90% is a red flag.
How to fix it: Focus on your top 20% SKUs by revenue — they drive most fill rate issues. Ensure those items always have adequate safety stock. Consider ABC classification to prioritize.
What it measures: The difference between what your records say you have and what you physically have.
Formula: (Recorded Inventory − Physical Inventory) ÷ Recorded Inventory × 100
Target: Below 1% for most industries. Retail averages 1.5-2%.
How to reduce it: Improve cycle counting frequency. Investigate discrepancies immediately — don't just adjust the system. Review receiving and shipping processes for errors.
What it measures: Inventory that hasn't sold in a defined period (typically 6-12 months).
Formula: Dead Stock Value ÷ Total Inventory Value × 100
Target: Below 5%. Above 10% is a serious cash flow problem.
How to reduce it: Run quarterly dead stock reviews. Offer bundles or discounts. Donate for tax write-offs if appropriate. Most importantly, stop buying more of what doesn't sell.
Pick three KPIs from this list and start measuring them this week. Inventory turnover, stockout rate, and dead stock percentage are good starting points for most businesses.
Don't try to track all seven at once — you'll get overwhelmed. Focus on the ones that address your biggest pain point. If you constantly run out of stock, fix stockout rate and fill rate first. If you have too much cash tied up in inventory, start with turnover and carrying costs.
Fluxventory tracks all seven KPIs automatically from your inventory data, giving you a dashboard that shows the health of your stock at a glance. Start free at fluxventory.com/register.
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