The One With Inventory Turns by SKU: The Metric That Reveals Hidden Cash Flow Problems

Founder sends us her inventory report, says we're good, right? We turn our inventory about 4 times a year, and I read that's healthy. And blended together, yeah, 4 turns, textbook fine. So we split it out by SKU. It took, took around about 10 minutes. Her hero product turning 11 times a year, which is an absolute machine. Other 23 SKUs, more than half of them had turned once in a year, and a few hadn't sold a full carton in 6 months. And her healthy business was one great product. It was dragging a graveyard behind it. That's today. So welcome back. This is metric number 2, inventory turns by SKU. And if you're not tracking it, you're flying blind. Here's the formula. Here's what's, what good looks like at your stage, and here's what happens when this number goes red. So first, what is an inventory turn? It's just this: how many times per year do you sell through your stock and replace it? That's it. If you hold about $10,000 of inventory on average and you sell, let's say, $60,000 of it at cost, over a year you turned your inventory 6 times. The formula If you want to write it down, it's your cost of goods sold for the year divided by the average inventory value at cost. Annual COGS over average inventory. That's turns. If spreadsheet math isn't your thing, here's the version you can feel. How many months of stock am I sitting on? 12 divided by your turns. 6 turns means 2 months of stock. 2 turns means 6 months of stock. 1 turn means you're sitting on a full year of product. Same number flipped around. Now here's the part of the title that actually matters. My SKU, because almost everyone who tracks turns at all tracks it blended. One number for the whole catalog and blended turns is one of the most misleading numbers in your entire business. It's likely averaging the temperature of your freezer And your oven concluded the kitchen's comfortable. Your hero sells fast. It turns 10, 12 times a year, and mathematically you're the winner pulling the average up right over the top of the slow movers rotting underneath it. The better your hero performs, the better your dead inventory hides. So the metric is turns, but the discipline, the thing this episode is really about refusing to look at it as one number. Every SKU should get its own. So why does it matter? So why does this kill brands? And just let me walk the chain because it's a little bit sneaky. Start with what inventory actually is. Inventory is cash wearing a costume. Every unit on your shelf is dollars you've already spent, frozen, waiting to thaw back into money when it sells. So An SKU that turns 12 times falls fast and you get your cash back monthly. An SKU that turns once, that's cash frozen for, let's say, a year. And at your stage growing between $500K and let's say $3 million, cash is the whole ball game. We, we did an entire episode on cash conversion cycle. Slow turning SKUs are the single biggest reason that cycle stretches out. Dead stock isn't Just annoying. It's your growth budget sitting in a box doing nothing. Now here's the cost and effect chain, how and how this actually kills. So step 1, you launch new SKUs because at growth stage, that's what you do. New colors, new sizes, bundles, line extension. Each one feels like growth. Most of them gets ordered at a real MOQ. Step 2, a couple win, most kind of don't, but nobody notices. Because revenue is going up, that the hero is pulling the wagon and the blended turn number still looks respectable. So step 3, reorder time, and your cash is thin. It's always thin at this stage. So what do you, so what do you fund? And here's the trap. The dead stock already took its cash and it's spent, gone into the freezer. So the money you should be deepening your, your, your winner is stock in your losers, and brands in this exact spot do the most backwards thing imaginable. They stock out of their best product, which is sitting in a warehouse full of their worst ones, starving the winner to babysit the losers. Step number 4, it compounds. The dead stock doesn't just freeze cash, it costs cash while it sits. Storage fees every single month, your 3PL bills you for the shelf space, whether it sells or not, and it ages. Packaging styles change, formulas expire, seasons pass, value melts, and eventually you do the walk of shame, the 50% off clearance sale, which trains your customer to wait for discounts, and which is a whole other disease. And step 5, the quiet one, complexity. Every slow SKU is a line on the PO, a forecast to maintain a listing, to manage a thing that can go wrong. And of course your ops gets heavier while your cash gets lighter. So connected back to the season thesis, you're tracking revenue. The revenue looks great because the hero's crushing it. Your revenue can't see any of that, any of what I just described. Turns by SKU can. It, it's the number that tells you whether your catalog is an engine or one engine towing, let's say a junkyard. So how do you track this? And good news, this is one of the easiest metrics of the whole season to set up. You already have every piece of data you need. You need two things per SKU, what it sold at cost over a period, and what you held at cost on average over the same period. So where it lives is, it's going to be in your sales by SKU, and it's sitting in Shopify or Amazon right now, exportable in about 4 clicks. Your cost per unit, your landed cost, you should have from your POs, and your on-hand inventory counts are in Shopify or on your 3PL portal or wherever you can track stock. The build is one spreadsheet, one row per SKU, columns units sold last 12 months times unit cost, and that's your COGS per SKU. Then average inventory, that's going to be An honest version is you, is you snapshot on, on, on-hand units monthly and average them. Lazy but fine starter version is take today's on-hand count as your proxy and refine it later. Divide and then that's turns per SKU. If, if you're newer than a year, use the last 90 days and multiply by 4 annualized, is annualized. Then this is the entire show. Trick, sort of. You have to sort the sheet, slowest turns at the top, then sorted list is the most honest document in your company. The top of that list is where your cash went to die. Two upgrades once the basic sheet exists, the one that you create that I said earlier. First, add a months of supply column divided by turns because this SKU has 14 months of stock. Lands emotionally in a way is point 80.85 turns, never will. Second, add a dollar column on hand units times unit cost for every SKU turning under, let's say 2. Sum it and that total is your frozen cash number. I've watched founders go pale at that cell. Usually the moment this stops being a metrics thing and becomes a we're fixing this month thing. So frequency should be monthly, full refresh first week of the month, 30 minutes once the sheet exists. Weekly is overkill. Returns move slowly. Quarterly is too slow. A bad SKU can eat 2 more reorder cycles in a quarter. And one honest warning while you're building this, returns and bundles will make the data slightly messy. Bundle sales need to decompose into their components used, and returns should net out units sold. And get it roughly right, at, at a turns number that's 10% off still gets you exactly where, which SKUs are dead. Don't let perfect data delay a decision that's ugly draft anyway. It makes it obvious. So what good looks like? Okay, benchmarks. What does good look like at your stage? $500K to $3 million direct-to-customer physical product. Um, blended, for whatever it's worth, most healthy DTC brands at this stage live somewhere between 4 and 8 turns a year. That's holding roughly 6 to 12 weeks of stock. Under 3 blended, you're You're heavy. Over 10, you're either an absolute operator or you're about to meet the next episode of Symmetrics Stock Health because you're running too lean. But just, but, but we just spent 20 minutes on why blended lies. So that's the tiering that actually matters by SKU. So your heroes, the products that pays the bills should be turning 8 to 12 plus. That's 4 to 6 weeks of supply, reorder tight and often. High turns on the hero is a sign of a founder who's actually running their inventory instead of parking it. Just don't chase the number so hard that you stock out. Hold the safety stock, and that trade-off is literally next week's episode. And your solid middle, think 4 to 8 turns, fine, watch them, reorder sensibly. Anything under 2 turns, 6+ months of stock is on notice, and that SKU has one job, prove it deserves a reorder and Mostly won't. And under one turn. More than a year of supply on hand, and that's not inventory anymore. That's a decision you're refusing to make. Clear it, bundle it, donate it for the write-off if that applies to you, but get the cash and the shelf space back. One caveat so nobody panics, seasonal and long lead times products naturally run lower turns. If you must order 8 months of stock in one shot because of lead times or seasonal buy, returns will look low and that's structural and it's not the— it won't be sick. The benchmark isn't the law. The sorted list is the law. So, all right, warning signs. The things that tell you that this metric's gone red sometimes before you've even built the sheet. Red flag number 1, your inventory value is growing faster than your revenue. Simplest tell there is, is if your sales grew 30% this year and your inventory at cost Grew 80. Turns are failing. Somewhere in the catalog, stock is piling up faster than it's selling. And you could check this one in 5 minutes with 2 numbers. So red flag number 2, your SKU is greater and growing faster than your revenue. 12 SKUs at $800K last year, 40 SKUs at $1.2 million this year, and you didn't grow the business 40%. You grew the complexity 200%. Every launch since then has been slicing the pie a little bit thinner. So red flag number 3, you keep running clearance sales and they've quietly become a regular thing. A clearance sale is Tern's failure arriving late wearing a marketing costume. Once a year, fine. Everyone, everyone misses. Every quarter, the metrics been screaming and nobody was just listening. So red flag number 4, you can't fund the reorder. On your bestseller while your warehouse is full. That's the starving the winner trap from earlier. That's where it lives. And in production, if we're out the hero and out of cash and we have plenty of inventory, and those are both true at the same time, but SKU would have caught it months ago. So red flag number 5, there are SKUs you just don't think about. Trying to remember the last time one sold. Haven't checked its listing in months. Invisible SKUs are where that dead stock lives. If it's not on the report, that just means that it's just out there rotting somewhere in your warehouse. Red flag number 6, the emotional one. You're keeping a SKU alive because you love it. It was the founding product or it's your favorite colorway. The data just says one turn. Your heart says legacy. I get it truly. But sentiment is just the most expensive storage fee that there is. So homework, one spreadsheet. Every SKU, turns, months of supply sorted worst first, and then that $1 figure, total cash frozen in anything under 2 turns. 30 minutes and you'll know something about your business that most founders at your stage generally don't. And if you want the template, uh, instead of building it, it's in the community. Founders in there are sharing their actual turns and benchmarking their numbers against other brands at their stage, which is the whole point because is 4Turns good? It's different when you can see that brands around about your size are actually running. It's free and yeah, you should reach out to the community and try to see what other DTC owners are doing. So today everything we did was priced at cost, unit times unit cost, and I'll let you use whatever number that you've got for that. So yeah, that's pretty much it for us and this video. I know it's a little bit technical about inventory turns, but you're more than welcome to ask us anything when it comes to this particular topic by commenting or DMing us in any of our socials. So thank you so much, and we hope that you enjoy this episode.