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Do you track inventory turnover ratio at your thrift store?
Inventory turnover ratio measures how many times a business sells and replaces its inventory over a certain time period. The more often you sell your inventory, the more revenue and profit you bring in — making this a key indicator of your thrift store’s success.
When trying to increase this metric, slow-moving inventory is the main obstacle. To overcome it, you need to prevent items from sitting on the shelves too long by finding creative ways to sell them.
In this blog, we’ll answer the question, “What is a good inventory turnover ratio?” and share four practical strategies for improving it.
Let’s dive in.
Why Inventory Turnover Matters for Thrift Stores
You might think, “As long as the store is profitable, it doesn’t matter how quickly inventory turns over.” And you may not want to track yet another metric. But keeping tabs on inventory turnover helps you make the most of your stock and reach your business’ full potential.
At thrift stores, most inventory is donated by members of the community — meaning you don’t have complete control over what you get. Intentionally implementing strategies to boost your inventory turnover ratio helps you maximize the value of those donations.
Stale inventory that’s been on the shelves for months takes up space that could be used for items in higher demand. When the same products sit too long, customers notice — and they may wait longer to come back for another visit.
Increasing your inventory turnover rate helps you generate more revenue from the same stock and keep customers engaged over the long term.
How To Calculate Inventory Turnover
There are two ways to calculate inventory turnover. The first is the cost method.
Using the Cost Method
Cost of goods sold (COGS) ÷ average inventory (at cost) = inventory turnover ratio
Let’s say you’re calculating the inventory turnover ratio for a calendar year. COGS represents the total amount spent on inventory during that year. Average inventory refers to the cost of the inventory your thrift store carries at any given time.
You can calculate this by adding the inventory at the beginning of the year to the inventory at the end of the year (both at cost) and dividing by two. For a more accurate result, take monthly inventory snapshots and average them.
Example: If COGS equals $50,000 and average inventory cost is $10,000, then 50,000 ÷ 10,000 = 5 — meaning you replaced your inventory five times during the year.
The second way to calculate your inventory turnover ratio is the retail method.
Using the Retail Method
Net sales ÷ average inventory (at retail price) = inventory turnover ratio
Because thrift stores obtain most of their inventory through donations, COGS is typically very low. The retail method bases turnover on sales instead, making it a more accurate measurement for thrift stores.
Example: If your annual sales total $120,000 and your average inventory on the sales floor (at retail price) is $25,000, then 120,000 ÷ 25,000 = 4.8. This means you sold through your inventory 4.8 times during the year.
Now that you know how to calculate your inventory turnover ratio, let’s look at what numbers you should be aiming for.
What Is a Good Inventory Turnover Ratio?
A “good” inventory turnover ratio depends on the types of products you sell in your thrift store.
Here are some general industry benchmarks:
- Fashion and apparel: 6.0–12.0 (turns over every 30–60 days)
- Electronics: 4.5–8.0 (every 45–80 days)
- Home goods and furniture: 2.5–5.0 (every 75–145 days)
Keep in mind that every business is different. Based on the types of items you stock, their distribution, and your past performance, set a customized inventory turnover goal for your thrift store. You can also establish separate turnover goals for different product categories.
4 Strategies for Increasing Inventory Turnover in Thrift Stores
Now that you have a better understanding of why your inventory turnover ratio matters, let’s explore a few strategies to increase it.
1. Process Donations Quickly
When items are donated, they need to be sorted, priced, and tagged before they can go out to the sales floor. Having processes in place to quickly prepare items for sale can increase inventory turnover.
You likely have a donation box in your thrift store. Make sure employees regularly bring its contents to the backroom for sorting. If you have one or more external donation boxes around town, determine how often pickups are needed so donations can be sorted and prepared promptly.
Shortening the time from donation arrival to floor placement is a hidden lever for boosting overall inventory turnover.
2. Discount Stubborn Inventory
If an item isn’t selling, try discounting it. Many thrift stores reduce prices based on how long items have been on the shelves. For example, an item might be full price for the first two weeks, then 25% off for the next two, then 50% off for two more. If the item still hasn’t sold after six weeks, it may be time to explore other options.
Color tags can help manage these discounts. You can tag items with blue tags for the first two weeks, then rotate to red and yellow to track how long items have been sitting. This system makes it easy to advertise discounts to customers and apply them at the register.
If it’s been months and the item just won’t sell, consider re-donating it to a shelter, school, or church. You could also find a recycler or reseller willing to buy the items at a reduced price.
Keeping contacts for places that accept re-donated or resold inventory helps you recoup value and makes it easier to manage slow-moving stock in the future.
Related Read: 10 Clearance Pricing Strategies That Actually Work
3. Increase Marketing Efforts
Targeted marketing is another way to increase inventory turnover, and social media is a great place to start. If you don’t already have accounts, set them up on popular platforms. Social media posts generate customer interest and allow you to advertise products that aren’t selling as quickly.
Email and SMS marketing can help keep existing customers engaged, too. You can share updates about new arrivals, discounts, and other noteworthy news.
You can also use marketing to guide donations. If shoes or jackets are your bestsellers, let customers know you’re seeking these items. When customers bring in high-quality donations, you move inventory more efficiently.
Related Read: Thrift Store Social Media Marketing: 5 Ideas To Try
4. Plan for Seasonal Shifts
Preparing for seasonal fluctuations is key to managing inventory turnover. You may receive seasonal donations, like winter clothing or pool gear. If these items arrive out of season, store them until needed so they don’t take up valuable shelf space.
Ideally, these items sell during their respective season. If winter is ending and you still have unsold warm clothing, consider marking it down and placing it in a highly visible spot at the front of the store. These strategies help you make the most of seasonal demand.
Related Read: 4 Holiday Pricing Strategies for Thrift Stores
Improve Inventory Turnover Ratio With ThriftCart
Inventory turnover ratio is an important metric for thrift stores. Tracking how often you replace inventory helps you maximize the value of each donation that comes into your store. You can improve this ratio by processing donations quickly, strategically discounting slow-moving items, using targeted marketing, and planning for seasonal shifts in customer demand.
Modern digital tools give you greater access to data, helping you make smarter business decisions. One of the most powerful of these tools is a point of sale (POS) system.
ThriftCart is an all-in-one, cloud-based POS solution designed specifically for thrift stores. Its detailed reporting features provide insights into customer demand and find your high and low sellers so you can manage them strategically. Marketing capabilities help spread the word and boost sales, while thrift-specific functions, like color-based discounting, make applying promotions simple.
To see what ThriftCart can do for your store, schedule a demo today!
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