Inventory Turnover

A financial metric that measures how often a restaurant’s inventory is sold and replaced over a specific period, providing insights into the efficiency of inventory management and sales performance.

What is Inventory Turnover?


Inventory turnover in restaurants refers to the rate at which inventory is used or sold and replaced over a specific time period. This metric helps restaurant owners and managers understand how quickly their inventory is being converted into sales, indicating the effectiveness of inventory management and the demand for menu items. A high inventory turnover rate generally suggests efficient use of inventory, while a low rate may indicate overstocking, underperforming menu items, or potential waste.


Components of Inventory Turnover:


  1. Cost of Goods Sold (COGS): The total cost of the ingredients and supplies used to produce the menu items sold during a given period.
  2. Average Inventory: The average amount of inventory held during the same period.
  3. Inventory Turnover Ratio: The ratio that indicates how many times the inventory is replaced during a specific period.


How to Calculate Inventory Turnover:


Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory


  1. Determine COGS: Add up the cost of all ingredients and supplies used to produce sold menu items over a specific period.
  2. Calculate Average Inventory: (Beginning Inventory + Ending Inventory) / 2
  3. Compute the Inventory Turnover Ratio: Divide COGS by the average inventory.


Example Calculation:


  1. COGS for the Period: $60,000
  2. Beginning Inventory: $10,000
  3. Ending Inventory: $14,000


Average Inventory: ($10,000 + $14,000) / 2 = $12,000


Inventory Turnover Ratio: $60,000 / $12,000 = 5


This means the restaurant’s inventory is sold and replaced five times during the period.


Benefits of Monitoring Inventory Turnover:


  1. Cost Efficiency: Helps in identifying overstocked or underperforming items, leading to better inventory investment decisions.
  2. Waste Reduction: High turnover typically indicates less waste, as ingredients are used up before they spoil.
  3. Improved Cash Flow: Efficient inventory turnover can improve cash flow by reducing the amount of money tied up in inventory.
  4. Menu Optimization: Identifies popular and slow-moving items, aiding in menu adjustments and better demand forecasting.
  5. Operational Efficiency: Reflects effective inventory management practices, ensuring that the kitchen operates smoothly without frequent stockouts or overstocking issues.


Strategies to Optimize Inventory Turnover:


  1. Analyze Sales Data: Regularly review sales data to identify high-demand items and adjust inventory levels accordingly.
  2. Optimize Ordering: Order smaller quantities more frequently to keep inventory fresh and reduce storage costs.
  3. Improve Forecasting: Use historical data and sales trends to predict future demand accurately and adjust inventory orders.
  4. Streamline Menu: Simplify the menu to focus on popular items and reduce the variety of ingredients needed, improving turnover rates.
  5. Implement FIFO: Use the First-In, First-Out method to ensure older inventory is used before newer stock, minimizing spoilage.
  6. Regular Audits: Conduct regular inventory audits to maintain accurate records and adjust ordering practices based on real-time data.
  7. Supplier Relationships: Build strong relationships with suppliers to ensure timely deliveries and negotiate favorable terms.


Example of Practical Application:


A restaurant notices that its inventory turnover ratio has decreased over the last quarter. Upon analysis, the management identifies that certain perishable items, like fresh herbs and seafood, are being overstocked and not used efficiently, leading to spoilage and increased costs. 


Steps Taken:


  1. Adjust Order Quantities: The restaurant reduces the order quantities of these items based on past sales data.
  2. Menu Adjustments: Less popular dishes requiring these perishable ingredients are replaced with more popular items.
  3. Supplier Negotiations: The restaurant negotiates more frequent, smaller deliveries with suppliers to keep inventory fresher.


Result: After implementing these changes, the inventory turnover ratio improves, indicating more efficient inventory use, reduced waste, and better cash flow.




Monitoring and optimizing inventory turnover is essential for restaurant management. It provides valuable insights into inventory efficiency, helps control costs, reduces waste, and ensures that the restaurant can meet customer demand without overstocking or stockouts. By adopting effective inventory management practices, restaurants can improve their operational efficiency, profitability, and overall success.

We’re here for you