The 7 Inventory Metrics Every Founder Must Track

What it measures: how many times the total inventory is sold and replaced in a given period. Calculation: (COGS for the period ÷ average inventory value for the period) = Inventory Turnover Ratio. Annualised: multiply by (12 ÷ period months). Why it matters: inventory turnover is the capital efficiency metric for inventory it tells you how hard your working capital is working. A turnover ratio of 10x means your average inventory unit is sold and replaced ten times per year the same ₹10 lakh of working capital generates ₹100 lakh of COGS throughput. A turnover ratio of 4x means the same ₹10 lakh generates only ₹40 lakh. Healthy range: 8 to 12x for fast-moving consumer categories; 4 to 8x for slower-moving or higher-ASP categories. Action trigger: below 6x indicates accumulating dead or slow stock that requires immediate investigation.

What it measures: the percentage of total inventory value represented by SKUs with no sales movement in the trailing 90 days. Calculation: (total value of zero-movement SKUs at cost ÷ total inventory value at cost) × 100. Why it matters: dead stock is working capital that is not working. Every rupee tied up in goods that are not moving is a rupee unavailable for production, marketing, or operations. At a 20 to 25% annual carrying cost rate, ₹10 lakh of dead stock costs ₹2 to ₹2.5 lakh per year to hold money that exits the P&L invisibly through rent, interest, and eventual write-offs rather than as a single visible line item. Healthy threshold: dead stock below 5% of total inventory value. Action trigger: above 10% requires immediate SKU rationalisation clearance pricing, channel reallocation, or write-off decision.

What it measures: the percentage of active SKUs that experienced a zero-inventory period of more than 48 hours in the trailing 30 days, expressed as a percentage of total active SKUs. Why it matters: stockout rate is the service level metric it tells you how often the brand fails to convert demand into revenue because the inventory is not available. As documented in the stockout revenue calculation article, each stockout event costs not just the lost revenue during the out-of-stock period but the marketplace algorithm penalty that suppresses visibility for 3 to 6 weeks after stock recovery. Healthy threshold: stockout rate below 3% of active SKUs per month. Action trigger: above 5% indicates systematic demand planning failures requiring process review.

What it measures: the percentage of order line items shipped complete and on time against the committed delivery window. Calculation: (order lines shipped complete and on-time ÷ total order lines) × 100. Why it matters: fill rate is the customer-facing output of inventory management. A high fill rate means that when customers order, they receive what they ordered when they expected it. A low fill rate produces partial shipments, delayed deliveries, and the customer service load that follows WISMO queries, refund requests, and the customer experience damage that reduces repeat purchase probability. Healthy threshold: above 97% for D2C website orders; above 95% for marketplace orders. Action trigger: below 92% signals either inventory accuracy problems (stock shows available but physically is not) or demand planning failures.

What it measures: the percentage of SKU inventory counts in the system that match the physical count during the most recent cycle count, expressed as a variance percentage. Calculation: (SKUs with zero variance between system count and physical count ÷ total SKUs counted) × 100. Why it matters: inventory accuracy is the foundation metric all other inventory metrics are only as reliable as the accuracy of the underlying count data. A brand with 94% inventory accuracy is making all of its demand planning, reorder, and cash flow decisions on data that is 6% wrong in ways it cannot see. In practice, a 6% inaccuracy in inventory count produces a mix of overstatement (system shows more than exists causes unexpected stockouts) and understatement (system shows less than exists causes unnecessary reorders). Healthy threshold: above 98% accuracy. Action trigger: below 95% requires systematic root cause analysis receiving process gaps, pick process errors, return processing gaps.

What it measures: the gross margin generated per rupee of average inventory investment. Calculation: (annual gross profit ÷ average inventory at cost) = GMROI. Why it matters: GMROI combines the margin and turnover dimensions of inventory performance into a single capital efficiency metric. An inventory position with high gross margin but low turnover may have a lower GMROI than one with lower gross margin but much higher turnover because the faster-turning inventory generates more margin per rupee of working capital invested over the year. GMROI is the metric that should guide SKU rationalisation decisions: SKUs with low GMROI (low margin per unit of capital deployed) should be candidates for portfolio reduction regardless of their absolute revenue contribution. Healthy threshold: GMROI above 2.5x for most Indian D2C categories. Action trigger: SKUs below 1.5x GMROI require explicit justification for continued investment (strategic anchor product, new launch with improving trajectory) or should be candidates for discontinuation.