Why Inventory Metrics Matter More Than You Think

Running a product-based business without tracking your inventory is like driving blindfolded. You might manage for some time, but eventually, you will crash. No matter if you’re a small online seller or run several warehouses, knowing your inventory KPIs is crucial.

You might be thinking, “I’ve got sales coming in, what more do I need?” The truth is, sales alone don’t guarantee profitability or operational health. With the right inventory metrics, you can.

  • Avoid stockouts and overstocking
  • Improve cash flow
  • Optimise storage and handling costs
  • Streamline forecasting and replenishment

In this guide, we’ll cover the key inventory KPIs to track. We’ll explain why they matter, how to calculate them, and how to use them for better business decisions.

What Are Inventory Metrics?

Defining Inventory KPIs

Inventory metrics are values that show how well businesses manage stock. These performance indicators help you understand turnover rates, carrying costs, stock accuracy, and fulfilment speed.

Monitoring these numbers regularly helps you:

  • Spot problems early
  • Understand buying patterns
  • Make informed inventory and financial decisions

Why Are They So Important?

Without metrics, you’re guessing. And in business, guessing can be expensive.

Inventory KPIs help you:

  • Reduce waste by identifying slow-moving items
  • Improve customer satisfaction by ensuring availability
  • Lower costs by optimising reorder points and storage usage

1. Inventory Turnover Ratio

What It Measures

How many times is inventory sold and replaced during a specific period?

Why It Matters

A high turnover rate means strong sales or lean inventory management. A low rate may signal overstocking or weak sales.

Formula

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Benchmark

Varies by industry. For retail, a good ratio might range from 4 to 8 annually.

2. Days Sales of Inventory (DSI)

What It Measures

How many days, on average, does it take to sell your inventory?

Why It Matters

Lower DSI means faster inventory movement and better cash flow.

Formula

DSI = (Average Inventory / Cost of Goods Sold) × 365

Benchmark

Generally, lower is better — aim under 90 days for most products.

3. Gross Margin Return on Inventory Investment (GMROI)

What It Measures

How much gross profit do you earn for every pound/dollar invested in inventory?

Why It Matters

Helps assess profitability based on your inventory spending.

Formula

GMROI = Gross Profit / Average Inventory Cost

Benchmark

Above 1.0 means you’re making more than you spend.

4. Stockout Rate

What It Measures

The percentage of customer orders that couldn’t be fulfilled due to insufficient stock.

Why It Matters

High stockout rates mean lost sales and unhappy customers.

Formula

Stockout Rate = (Unfulfilled Orders / Total Orders) × 100

Benchmark

Aim for under 5% — lower for fast-moving or essential products.

5. Inventory Accuracy

What It Measures

The difference between recorded inventory and actual physical inventory.

Why It Matters

Ensures trustworthy data for decision-making and fulfilment.

Formula

Accuracy Rate = (Correct Items / Total Items Checked) × 100

Benchmark

Strive for 97% or higher in warehouses or e-commerce.

Learn how to maintain this Using Cycle Counting for Inventory Accuracy.

6. Backorder Rate

What It Measures

The percentage of orders not immediately fulfilled due to a lack of inventory.

Why It Matters

Indicates demand-supply imbalance; affects customer satisfaction.

Formula

Backorder Rate = (Number of Backordered Items / Total Ordered Items) × 100

Benchmark

Below 5% is ideal in most industries.

7. Rate of Return

What It Measures

How many items are returned after the sale?

Why It Matters

High return rates may indicate product issues, poor descriptions, or shipping errors.

Formula

Return Rate = (Units Returned / Units Sold) × 100

Benchmark

Keep below 10%, depending on product category.

8. Carrying Cost of Inventory

What It Measures

The total cost of holding inventory includes:

  • Storage
  • Insurance
  • Depreciation
  • Opportunity cost

Why It Matters

Helps set pricing, reduce excess stock, and improve ROI.

Formula

Carrying Cost % = (Total Carrying Costs / Total Inventory Value) × 100

Benchmark

Ideal range: 20–30% annually.

9. Fill Rate

What It Measures

The percentage of customer demand met without backorders.

Why It Matters

High fill rates = strong fulfilment process.

Formula

Fill Rate = (Shipped Items / Ordered Items) × 100

Benchmark

Best practice is 95% or above.

10. Order Cycle Time

What It Measures

The time from when an order is placed to when it is shipped.

Why It Matters

Shorter cycle times mean faster service and better customer experiences.

Formula

Measure via average time between order receipt and dispatch.

Benchmark

It depends on the industry, but the aim is to reduce it where possible.

Bonus: Perfect Order Rate

This composite metric measures how often orders are:

A delivery rider on a white scooter speeds along a city road, with a large clock symbolizing urgency in the background.

  • Delivered on time
  • Complete
  • Undamaged
  • Correctly documented

Why It Matters: A high perfect order rate shows great operations and happy customers.

Benchmark

Above 90% is typically considered world-class.

Real-Life Example: How Metrics Saved an eCommerce Business

Bella’s Kitchenware, a home goods e-commerce store, was struggling with warehouse chaos.

  • 78% accuracy in their stock records
  • A 12% return rate
  • 7-day order cycle time

After starting real-time tracking and monitoring key metrics, they achieved.

  • Improved inventory turnover
  • Higher fill rate
  • Lower return rate
  • Inventory accuracy of 98.5%
  • Return rate reduced to 5%
  • Order cycle time cut to 2 days

The result? Customer reviews improved, and they saw a 21% boost in repeat purchases within four months.

Practical Tips to Track and Optimise Metrics

1. Use Inventory Management Software

Popular tools: Cin7, Ordoro, Unleashed

It is a tool that used for tracking a stock

  • Real-time data
  • Automated KPI tracking
  • Easy integration with sales platforms

2. Conduct Regular Audits

  • Validate recorded vs. actual stock
  • Spot discrepancies early

3. Use Dashboards and Alerts

  • Set thresholds for shrinkage, backorders, and turnover
  • Use visuals to track trends over time

4. Benchmark Against Industry Standards

  • Don’t guess — compare your performance to market norms

5. Train Staff on KPI Relevance

  • Help them understand how their actions affect inventory KPIs

Conclusion: Turn Metrics Into Money

You don’t need to track dozens of KPIs — just the right ones. Start with a few key inventory metrics like turnover, DSI, and fill rate. Build from there.

These metrics aren’t just numbers. They share a story about what works, what eats into your profits, and where your biggest chances are.

So take the wheel—track, tweak, and grow.

Got questions or your own tips on inventory KPIs? Drop them in the comments — we’re all ears!

For extra help, read more on DSI in Blogs, Inventory Metrics & KPIs