Measuring turnover and sales

Any successful business requires its owner to carefully monitor stock turnover and sales. You can use stock turnover and sales ratios to find out how well you are managing the types of product you sell.

Stock turnover ratio

This ratio demonstrates how well your business is managing stock levels. Stock turn is the rate at which a retail business turns over its stock. It compares sales to stock holding.

Once you have read and understood the example, you can type the numbers that are relevant to your business into the calculator to see your stock turnover ratio.

Step 1

Use this formula to calculate your average stock holding.

Average stock holding = (opening + closing stock) x 0.5

Step 2

Use this formula to calculate your stock turnover ratio.

Stock turnover ratio = Cost of goods sold ÷ average stock holding

The higher the stock turnover, the better. An increase in stock turnover in most cases will also achieve a better return on investment. You can also use this ratio to help judge the effectiveness of any business strategies you try, such as new product design or a marketing push.

Material to sales ratio

The material to sales ratio indicates how much of the sales dollar is consumed by the cost of direct materials. Use the following interactive calculator to help you work out your material to sales ratio. Once you have read and understood the example, you can type the numbers that are relevant to your business into the calculator to see your material to sales ratio.

Material to sales ratio

Use this formula to calculate your material to sales ratio.

Material to sales ratio = (cost of direct materials ÷ sales) x 100

Labour to sales ratio

The labour to sales ratio indicates how much of your sales dollar will be spent in direct labour. Use the following interactive calculator to help you work out your labour to sales ratio. Once you have read and understood the example, you can type the numbers that are relevant to your business into the calculator to see your labour to sales ratio.

Labour to sales ratio

Use this formula to calculate your labour to sales ratio.

Labour to sales ratio = (cost of direct labour ÷ sales) x 100

Overhead expense to sales ratio = (total cost of overheads ÷ sales) x 100