Days Sales in Inventory: Formula, Definition & More

It can be a simple yet invaluable means to arrive at more informed decisions on restocking. Understanding DSI is important in gauging a company’s liquidity, overall inventory health, and profitability. With a DSI calculation, you can compare your business performance against competitors, but also find out internal weaknesses that may need a new strategy to ensure more liquidity, without damaging the buying experience. For most companies, a good DSI is between 3 weeks to 2 months, depending on the product speed, the type of product, the seasonality of the how to calculate and improve amazon days sales in inventory industry, etc.

Key Considerations for FBA Inventory Management:

Do you want to perfect the management of your inventory to keep costs low while being able to meet customer demand? Accurately tracking FBA inventory can help reduce lost sales, ensure proper stock, identify slow-moving products, and drive better decision-making. A high sell-through rate indicates that products are being sold quickly and efficiently, and inventory can be replenished in time for availability. Additionally, selling both 1P and 3P products can increase the range of products offered, creating a broader customer base and increasing customer loyalty and sales.

Determining a good DSI level

Regularly comparing the value with industry standards, competitor levels, and historic averages can offer insights and help adjust strategies to optimize both operational efficiency and financial performance. On the other hand, an increasing DSI could suggest overstocking risk, which ties up capital and increases holding costs. A lower DSI means the company converts its inventory into cash faster, advantageous for liquidity. The company’s average inventory value amounted to 60,000$ for the time period. The average inventory is a KPI signifying the estimated average value of inventory on hand at a given time. A higher DSI, on the other hand, may indicate low sales and a risk of overstocking.

This information can be used in the future if the nature of the business is quite steady and not seasonal. 1.An electronics online store reported a year-end cost of goods sold of $11 million. A DSI calculation is fairly simple to do, but it gives a clear overview of any improvements and readjustments that need to be made in the warehouse operations of an eCommerce business. Learn what the DSI ratio measures, how you can calculate it, what a good ratio is, and why it’s important for retailers to improve their eCommerce business.

It’s important to regularly review inventory levels to avoid stockouts and identify any stranded inventory, which can then be disposed of or repurposed. Having enough inventory in stock is essential for quickly fulfilling customer orders, leading to increased satisfaction and positive reviews, which can boost the IPI score. The 80/20 rule as it relates to eCommerce, suggests that 80 percent of your business comes from 20 percent of your products. A high sell-through rate is a positive sign as it indicates that your product is selling well and in high demand.

Stockouts can lead to missed sales and dissatisfied customers, while overstocking ties up resources unnecessarily. In this comprehensive guide, we will address these challenges by providing actionable strategies for optimal inventory management. Tools like Inventory Planner improve DSI by providing accurate demand forecasting, replenishment suggestions, SKU-level insights and overstock reporting, helping retailers maintain optimal stock levels. It helps retailers evaluate turnover, cash flow and the efficiency of their purchasing and demand planning. However, depending on the industry, it can also mean that a company with a high DSI is purposely keeping high inventory levels because of fluctuating lead times, minimum supply quantities, or high replenishment logistics costs. Simply put, Days Sales in Inventory (DSI), Days Inventory, or Inventory Days, is a metric that measures the number of days it takes for a business to turn its inventory into revenue.

The Impact of Inventory Management on Sales and Customer Satisfaction

• Calculating days sales in inventory actually requires calculating a few other figures first, so we’ll break down the formula needed.
• What counts as “good” depends on your category, lead times and demand variability, but retailers aim for a DSI that minimizes excess stock without risking stockouts.
• There are several sales estimators on the market.

Demand forecasting can help brands stay ahead of trends—such as seasonal demand for certain products—and allow them to plan ahead to have extra stock on hand. With more accurate customer analytics like demand forecasting , with Flowspace’s tools, brands can better manage inventory by having safety stock to avoid low inventory count situations while also avoiding excess inventory cost. Brands can ensure optimal inventory levels with real-time tracking, low inventory level alerts, and a predictive view of remaining products. Brands can benchmark their inventory days sales against their competitors as well as their own historical DSI to determine the right financial ratio for them and their business.

These discounts can increase product visibility, drive impulse purchases, and encourage customers to add items to their carts. These discounts encourage customers to complete a purchase, increase the average order value, and drive multiple-item purchases. This knowledge can accelerate sales of excess inventory via promotions, pricing strategies, or advertising, all while maintaining profitability. Track excess inventory over time, then adjust ordering frequency and safety stock to minimize overstocking. Ordering too soon means a brand is paying to store products that are just sitting on the shelves. This tracking will also allow businesses to have a better understanding of their inventory value.

For instance, if your average daily sales are 20 units, lead time is 10 days, and safety stock is 50 units, your reorder point is 250 units. Inventory turnover measures how quickly your products are sold and replenished within a given timeframe. These fees can quickly add up, especially for products that linger in storage without generating consistent sales. However, understanding how FBA inventory management works is essential to decrease costs and increase profits. Maintaining appropriate stock levels ensures your product stays available for purchase, positively affecting your sales rank. Inventory management goes beyond simply tracking stock—it also directly influences your sales performance and customer experience.

Multi-Channel Fulfillment Strategy

What’s realistic when it comes to sales volume? How many sales will you make this month? Address these issues by optimizing your reorder strategy and using data-driven tools to predict demand accurately. Clearing out older inventory becomes essential to avoid these extra charges. Proactively tracking return trends and addressing their underlying causes can significantly reduce their occurrence, ultimately improving customer satisfaction.

SELL-THROUGH RATE (STR): Why Units Sold Matters

To avoid excess inventory, ensure that your product pricing is competitive and aligned with market demand. Offering promotions or discounts is a great strategy to move your excess inventory quickly and reduce storage costs. Regularly checking inventory levels can help prevent overstocking and enable early identification of excess inventory. This helps optimize inventory levels and improves efficiency, customer satisfaction, and profitability. By monitoring inventory levels, brands can make data-driven decisions about how much stock to order, how often to order, and when to reorder. Then, determine the safety stock to avoid stockouts by subtracting the average monthly sales from the safety stock.

Top 5 Reasons Why DTC Brands Are Switching to Flowspace for Fulfillment

Conversely, a higher DSI indicates that cash is tied up in unsold inventory for longer periods, straining finances. DSI is a pivotal indicator of how long a company’s cash is tied up in inventory before it turns into sales. For this, we need to know the values of two other KPIs – average inventory and cost of goods sold. As stated above, the first step in calculating DSI is to determine the inventory turnover rate. Tracking both KPIs is useful as it can provide detailed insights for product lifecycle management, inventory optimization, pricing strategies, etc. While both KPIs pertain to converting inventory, they are inversely related – a lower DSI means a higher inventory turnover rate, and vice versa.

Days Sales in Inventory vs Inventory Turnover

However, maintaining an IPI score of at least 550 keeps many sellers up at night. For example, does one product have a higher sale rate on the West Coast? The Flowspace Network Optimization algorithm identifies the optimal warehouse fulfillment centers within the nationwide Flowspace network so brands can provide the fastest, most cost-efficient shipping to their customers. Ideally, the lowest DSI a brand can pull off without running into inventory figure issues is the best DSI for them. Inventory analysis and management are critical parts of managing a successful ecommerce brand. They’re best used as a guide to give you a better idea on the estimated number of sales, not exact figures.

With that, the manufacturer knows that on average, it goes through its inventory 4 times a year and it takes around 91 days to go through its entire stock. Once we know the average inventory and COGS values, we can find the inventory turnover ratio. By calculating your DSI, you can find flaws and weaknesses in your stock management system and fix and prevent issues like stockouts and angry customers, or unnecessary costs. DSI is useful for retailers because it helps them optimize inventory levels, minimize unnecessary costs, and maximize sales revenue.

Stay up to date and accelerate your business with tips, tricks, and the latest commerce news. If the result is a positive number, it indicates the number of units that are stranded and unable to be sold. Pacvue streamlines review management by analyzing comments and flagging themes for you to address. There are various ways sellers can increase visibility and credibility with better reviews. Regularly monitoring and adjusting pricing can help improve your sell-through rate (STR). Competitive pricing is essential for a successful online business, as 80% of consumers consider it important.

• Demand forecasting can help brands stay ahead of trends—such as seasonal demand for certain products—and allow them to plan ahead to have extra stock on hand.
• When calculated, its inventory turnover ratio equals 8.75.
• Inventory turnover measures how quickly your products are sold and replenished within a given timeframe.
• It helps retailers evaluate turnover, cash flow and the efficiency of their purchasing and demand planning.

Overpriced products may sell poorly, which can result in excess inventory. To manage inventory, first, calculate average monthly sales for each product from sales history. To manage inventory, first, calculate the average monthly sales for each product from the sales history. Calculating and reducing excess inventory improves profitability, reduces storage costs, and provides a better customer experience. Focusing on improving the days sales in inventory KPI allows brands to more efficiently manage their inventory. Ordering too late means sold out products and unsatisfied customers.