Inventory turn is a key measurement in retailing. It measures how effectively you are using your assets. To calculate inventory turn, divide annual sales by average inventory. There is no hard and fast rule in tool distribution on what a turn should be. But in theory, one turn is too low. And six turns is excellent.
About half of the dealers I polled did four or more turns a year. Lower turns concern me, but not as much as those that had no idea what their turn was. That’s scary. If you don’t know your numbers off the top of your head, you don’t have a pulse on your business.
Cornwell dealer Phelps is successful at doing about five turns a year. I give him a gold star for using his assets well to make money. He is textbook.
The other aspect of inventory is keeping most of your inventory on the truck and not in storage. Having too many items in storage is tying up inventory and cash.
“I really don’t have anything at the house if there isn’t one on the truck,” Phelps says.
He clarifies that there are big items that he doesn’t carry on the truck like welders and toolboxes. But he tries to keep at least one item from the product category on his truck. He has about 75 percent of his inventory on his truck and the rest at home.
