Stock-to-sales ratio
Max Pechonis · Founder, Rebridge ·
Stock-to-sales ratio is how much inventory you held at the start of a month compared with what you sold during it. Beginning-of-month stock divided by that month's sales, both at retail value. A ratio of 3.0 means you began the month with three times what you went on to sell.
The formula
Stock-to-sales = beginning-of-month inventory ÷ sales for that month
Both figures at retail value, and both for the same month. A shop that opened March holding $130,000 and sold $40,000 during it ran a stock-to-sales ratio of 130,000 ÷ 40,000 = 3.25.
The ratio is unitless, which is the point. It lets you compare a $40,000 month against a $400,000 month, and one category against another, without the size of either distorting the comparison.
What a high or low ratio is telling you
A high ratio means you are carrying a lot of stock relative to what moves. Sometimes that is correct: a category that needs a full size run present to sell at all, or a month whose stock is deliberately built ahead of a selling peak. Often it is capital sitting still.
A low ratio means you are running lean. Sometimes that is efficient. Often it means you are losing sales you never see, because the size or color someone wanted was not there and nothing records the person who left.
Neither reading is available from the ratio alone. What makes it interpretable is the comparison: the same month last year, or the same month across categories. A ratio that moved from 2.8 to 4.1 year on year is a fact about your business. A ratio of 4.1 by itself is not.
Where it sits in the planning arithmetic
Stock-to-sales is what connects a sales plan to a stock plan. Plan the month's sales, apply the ratio you intend to run, and you have the beginning-of-month stock the plan requires. That figure is one of the inputs to open-to-buy, which is why an unrealistic ratio quietly produces an unrealistic budget.
It is also the monthly counterpart to weeks of supply. A ratio of 3.25 is about 14 weeks of cover, since a month averages 4.33 weeks. The ratio suits monthly planning because plans are monthly; weeks suit a reorder decision because lead times are quoted in weeks.
Questions
Is stock-to-sales the same as inventory turnover?
They are related but not the same, and they run on different clocks. Stock-to-sales is a monthly snapshot of beginning stock against that month's sales; turnover measures how many times stock sold and was replaced across a year. A consistent monthly stock-to-sales of 3.0 corresponds roughly to a retail turn of 4, since 12 divided by 3 is 4. Note also that the broader inventory-to-sales ratio used in financial reporting divides AVERAGE inventory by sales, so a finance colleague may mean something slightly different by a similar name.
Should the ratio use beginning or average inventory?
Beginning-of-month is the convention, because the ratio exists to answer what you needed on hand at the start of the month to support it. Average inventory belongs in turnover and GMROI calculations instead.