Calculating and Utilizing Your Inventory Turnover Ratio to Maximize Profitability

The inventory turnover ratio, or “turn”, as it is often shortened to, is the estimated number of times that a dealer will sell their entire inventory in the span of 12 months. It is a metric commonly used to understand how efficiently a dealership is managing its inventory.

A dealership with a higher turnover ratio is efficiently moving cars, creating consistent cash flow, and minimizing holding costs and the risk of inventory depreciation. However, if turn is too high, you may have the ability to add more inventory and increase sales volume, which will lower your turn but increase profits that were otherwise being left on the table.

On the other hand, a lower turn rate could indicate to a dealer that they need to improve merchandising, stock vehicles better fit for their market, or improve some other aspect of their operations to ensure vehicles are flowing in and out of their dealership.

As you can see, turn is a valuable tool to understanding the state of your dealership operations! Which begs the question…

The inventory turnover ratio is commonly calculated by taking the number of days in a year and dividing it by your average vehicle inventory age, which we will use “a_inv” to represent:

But how does one calculate average monthly sales? Average vehicles in stock? Sales and stock are changing with the seasons and with the state of the economy, so how do you, as a dealer, ensure you have the most accurate turn ratio, no matter the season or economic state?

But how does one calculate average monthly sales? Average vehicles in stock? Sales and stock are changing with the seasons and with the state of the economy, so how do you, as a dealer, ensure you have the most accurate turn ratio, no matter the season or economic state?

VINCUE ensures you have the most accurate, up-to-date turn by using a rolling 30-day turn. “Rolling 30 days” means that turn is updated every day using the last 30 days worth of data from your dealership, so it ALWAYS reflects the season and economic conditions in which you are operating.

By providing the most accurate AND most current turn rate, VINCUE is giving dealers the tools they need to maximize operational efficiency AND profitability. Click the link below to see VINCUE in action!

However, inventory turn can still be significantly impacted by major inventory fluctuations, such as a sudden increase in auction vehicles or a high volume of dealer trades. In VINCUE you can account for this variability using VINCUE’s Inventory Turn report! This tool allows dealers to customize the calculation period for inventory turnover, empowering you to define turnover in a way that aligns best with your business needs.

By providing the most accurate, most current, AND most customizable Comment end turn rate, VINCUE is giving dealers the tools they need to maximize operational efficiency AND profitability. Click the link below to see VINCUE in action!