Most inventory dashboards surface thirty numbers. You need three of them on a given Tuesday. This guide covers the eight KPIs that actually explain whether your inventory is working — turnover, days on hand, shrinkage, sell-through, GMROI, carrying cost, stockout rate, and fill rate — with the formula for each and what a healthy number looks like.
Track all eight. Act on three. A KPI you review but never change a decision because of is trivia, not management. The closing section below tells you which three to check first, and why the other five can wait for a monthly or quarterly look.
By Edmund Tong, Founder of StockZip · Last updated: 2026-07-03
Inventory turnover measures how many times you sell through your average inventory in a period — the headline number for whether cash is moving or sitting on a shelf.
Inventory turnover = COGS ÷ Average inventory
Run the numbers with the inventory turnover calculator, or read the full definition for the annual vs. trailing-12-month versions.
Good looks like: compare against your own trailing 12 months, not a generic industry number — a rising trend matters more than the absolute figure.
DIO restates turnover in days instead of times-per-year — how long, on average, a dollar of inventory sits before it sells.
DIO = 365 ÷ Inventory turnover
Good looks like: falling DIO on stable sales volume. A sudden jump usually means turnover is dropping — check for overbuying or slow-moving SKUs before it shows up as a cash problem.
Shrinkage rate is the gap between what your records say you have and what a physical count finds — theft, damage, admin error, or supplier shortfalls, all in one number.
Shrinkage rate = (Recorded − Physical) ÷ Recorded × 100
The shrinkage guide covers the four causes and how to cut it without adding security staff.
Good looks like: under roughly 2% and trending down, not up.
Sell-through rate tells you what share of what you bought actually sold in a given window — the fastest signal that you bought too much, or not enough, of something.
Sell-through rate = Units sold ÷ Units received × 100
Good looks like: 80%+ within your normal reorder window for regularly-stocked items. Well below that and you are tying up cash in slow movers.
GMROI (Gross Margin Return on Inventory Investment) answers the question turnover alone can't: for every dollar tied up in inventory, how many dollars of gross margin does it earn back?
GMROI = Gross margin $ ÷ Average inventory cost
It leans on the same margin math as the markup vs. margin glossary entry — get that distinction wrong and GMROI will be wrong too.
Good looks like: above 1.0 at minimum — meaning the stock earns back more than it costs to hold. Most healthy retail categories run 2–3.
Carrying cost is the annual cost of simply owning inventory — capital tied up, storage, insurance, and the risk of obsolescence — expressed as a share of inventory value.
Carrying cost rate = Annual holding cost ÷ Average inventory value
Typical range is 15–30% of inventory value per year, covering capital cost, storage, insurance, and obsolescence combined.
Good looks like: near the low end of that 15–30% range and stable year over year. A rising rate usually means aging or slow-moving stock, not a change in your storage bill.
Stockout rate is the share of time a SKU sat unavailable to sell — every day it's at zero is a sale you can't recover.
Stockout rate = Stockout days ÷ Total days (per SKU)
Tune reorder points with the reorder points guide to keep this number down without over-ordering.
Good looks like: under 2–5% for your A-items; C-items can tolerate more.
Fill rate measures how often you ship a customer's order complete on the first attempt — no backorders, no partial shipments.
Fill rate = Orders shipped complete ÷ Total orders × 100
Good looks like: 95%+ for a healthy operation. Below 90% and stockouts are costing you repeat customers, not just single sales.
If you only review three of the eight, make it these:
Review those three monthly. The remaining five — DIO, sell-through, GMROI, carrying cost, and fill rate — are useful diagnostics, but they move slowly enough that a quarterly review catches problems in time.
StockZip's movement history and inventory valuation reports track every add, remove, and adjustment behind these numbers — turnover, shrinkage, and sell-through fall out of data you are already generating, no spreadsheet required.
Straight answers about which metrics matter most, industry turnover benchmarks, and how often to review them.
Inventory turnover, stockout rate, and shrinkage rate matter most for small businesses. Turnover tells you whether cash is moving or trapped on a shelf, stockout rate tells you what sales you are losing, and shrinkage rate tells you whether the other numbers can be trusted in the first place.