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Thread: Best Turn Over Ratio / Formula

  1. #1
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    Best Turn Over Ratio / Formula

    Its time for me to analyze last years frame sales and I am not completely happy with the formulas I use. I am hoping someone with a deep business background can help me.

    The Retail sector uses Inventory Turn Over Ratio to determine the best stock level of product to have (which varies by industry) but in eyewear we don't take into account the varied margins nor the value of the lenses, nor the higher labor and service we provide. The ratio is simply the units you sell vs. the units you have on hand, so if I have 300 frames on the board and sell 900 in a year, I have a 3:1 turn.

    I have used a 3:1 ration for years as a goal but I believe I could be short changing myself (and under stocking my boards) by not considering the added margin of the lenses.

    Is their a (simple?) formula available that would analyze turn over based on margins vs. cost and not on simple units?

    Thanks,
    Sharpstick

  2. #2
    What's up? drk's Avatar
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    If you like to analyze, consider ROI.

    Total profit margin from collection per year/Inventory cost of collection over the year

    See how your "investment" is paying off.

    This is apples to apples comparison, IMO.

    "Turn" isn't that precise, but it's the right idea. Consider that you'd have to turn a lower profit margin collection more often than a high one to make equal money.

    Lenses don't factor in when evaluating performance of a frame collection.

  3. #3
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    [quote=drk;278626]If you like to analyze, consider ROI.

    Total profit margin from collection per year/Inventory cost of collection over the year See how your "investment" is paying off.

    This is apples to apples comparison, IMO.

    "Turn" isn't that precise, but it's the right idea. Consider that you'd have to turn a lower profit margin collection more often than a high one to make equal money.[quote]

    Exactly what I was looking for... but is thier an ROI formula that would work well for eyewear? The strange mix of retail, fashion and medical makes our industry unique so I don' think the standard formulas apply.

    Quote Originally Posted by drk View Post
    Lenses don't factor in when evaluating performance of a frame collection.
    That is what most people would say (and it would be fair if I was only comparing one line to another) but since 98% of our frame purchases involve lenses and their higher margin, I think the total profit of a frame purchase affects the "total" profitability of a frame. I am looking to do more than compare one frame line to another but to determine an ideal inventory level based on ROI.

    Sharpstick

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