Many business owners track data but rarely act on it. This article will demystify which inventory metrics matter most, what they reveal about operations, and how to respond when numbers shift.
Why inventory metrics matter
Metrics bridge the gap between knowing what’s on the shelf and making better business decisions. Metrics are also one of the best defenses against common small business pain points, including:
- Stockouts and overstocking
- Hidden carrying costs and holding costs
- Wasted hours reconciling spreadsheets instead of using a real‑time dashboard
- Little visibility into true inventory value
By tracking the right inventory management KPIs, managers can optimize inventory levels, improve forecasting, and streamline replenishment.
Eight inventory metrics that every manager should track
Here are eight of the most critical inventory metrics businesses should be tracking whenever possible:
| # | Metric | What it is | Why it matters | How to measure | What to do if results shift |
| 1 | Inventory turnover | Frequency stock is used/replaced | Reveals efficiency of asset/consumable use | COGS ÷ average inventory | Low turnover → reduce excess inventory; high turnover → ensure supply meets demand |
| 2 | Days’ sales of inventory (DSI) | Average days items sit before use | Indicates liquidity and speed | (Inventory ÷ COGS) × 365 | Rising DSI → streamline procurement; falling DSI → watch for stockouts |
| 3 | Carrying cost of inventory | Cost of holding stock over time | Exposes hidden expenses | % of inventory value | High cost → cut excess, renegotiate storage, redeploy assets |
| 4 | Stockout rate | Frequency of running out | Shows service reliability | (# stockouts ÷ total number of orders) × 100 | High rate → adjust reorder points and lead time |
| 5 | Fill rate (service level) | % of orders fulfilled without delay | Reflects customer satisfaction | (Customer orders filled ÷ total orders) × 100 | Low fill rate → improve demand forecasting and allocation |
| 6 | Shrinkage rate | Loss from theft/damage/discrepancies | Highlights control issues | ((Recorded − physical inventory) ÷ recorded) × 100 | High shrinkage → tighten controls and audits |
| 7 | Inventory accuracy | Match between records and reality | Ensures trust in data | (Accurate items ÷ total inventory) × 100 | Low accuracy → improve cycle counts and inventory control |
| 8 | Dead stock percentage | Items that never move | Identifies waste and opportunity | (Dead stock ÷ total inventory value) × 100 | High % → liquidate, repurpose, or stop ordering |
Before diving into each metric, remember that many businesses are dynamic. Assets move, consumables deplete, and multi‑site coordination complicates tracking. As a result, consistency and simplicity are essential when measuring metrics. The best data is the data you can compile regularly and without unnecessary friction or disruption.
1. Inventory turnover
Inventory turnover tracks how frequently inventory, materials, or assets “cycle through” your business. In construction, turnover reveals whether tools and materials (or anything else, for that matter) are being used efficiently across sites.
Here’s an example: A construction firm might notice drill bits and safety gloves cycling quickly, signaling steady usage, while low turnover could point to over‑ordering or poor allocation. This metric, which can function as a key performance indicator (KPI), is calculated using cost of goods sold (COGS) divided by average inventory.
2. Days’ sales of inventory (DSI)
Days’ sales of inventory, or DSI, shows how long items sit before they’re used. For medical practices, for example, a high DSI may indicate over‑ordering of supplies that risk expiration.
One example: Surgical masks sitting in storage too long can highlight excess inventory that risks going to waste. Tracking DSI helps managers benchmark inventory value against demand forecasting and optimize replenishment cycles.
3. Carrying cost of inventory
Carrying cost of inventory captures the actual cost of holding onto items, which far exceeds the simple cost of the goods themselves.
Here’s an example: A company storing heavy-duty equipment it uses periodically for jobs may face rising storage costs; at a certain point, it may make more financial sense to rent the equipment rather than own it.
Monitoring inventory carrying costs alongside warehousing and operating costs ensures better decision‑making and healthier profit margins, especially if vendors control some of these costs.
4. Stockout rate
The stockout rate measures how often items run out. For construction teams, for instance, frequent stockouts delay projects and frustrate crews—and drive up costs and upset project owners, too. And a plumbing contractor running out of copper fittings mid‑project would face costly delays and emergency purchases at a higher cost that eats into profits.
Tracking stockout rates (and taking care to prevent them in the first place) helps optimize inventory control and improve customer satisfaction.
5. Fill rate (service level)
Fill rate indicates how reliably orders are fulfilled. This KPI is central to order fulfillment, helping managers streamline the order process and achieve customer satisfaction.
6. Shrinkage rate
Shrinkage rate tracks losses from theft or damage. In healthcare, shrinkage may point to poor handling of supplies. And a construction company discovering missing power tools after audits may need tighter check‑in and check‑out controls . . . or a better security system altogether.
Shrinkage impacts total inventory value and inventory accuracy. And, of course, it directly affects profits. Lost inventory needs to be replaced, and that’s cash wasted.
7. Inventory accuracy
Inventory accuracy compares inventory records to actual, physical inventory counts.
For construction firms, inventory accuracy ensures crews aren’t left waiting for missing tools—and that raw materials (which are often very expensive) are all accounted for.
This KPI is foundational to all inventory management processes. Without accurate data, all other actions, including forecasting, replenishment, and decision‑making, break down.
8. Dead stock percentage
Dead stock percentage identifies items that never move (and never will).
In manufacturing, dead stock ties up capital and storage space. These unused items, provided they’ll never actually be utilized, should be liquidated or recycled so that the cost of carrying them can be reduced right away.
Whether you track one, two, or all of these metrics, Sortly offers the data, reports, and dashboards needed to either visualize these metrics or calculate them quickly, helping teams to plan ahead and stay organized.
Which inventory metrics matter most for your industry
Different industries emphasize different metrics, so what you choose to track and analyze will likely vary based on your unique business needs. We’ve highlighted the specific data points that various industries lean on to measure success:
- Construction and trades: Turnover, stockout rate, and accuracy are critical for keeping projects on schedule.
- Medical and healthcare: DSI, shrinkage, and dead stock are vital for patient safety and compliance.
- Manufacturing and field services: Fill rate, carrying costs, and turnover directly impact production efficiency and profitability.
How to choose the right inventory metrics for your business
Not every metric matters equally. Choose KPIs that serve your operating model, constraints, and goals. In other words, prioritize metrics that’ll actually inform how your business makes decisions.
Here are three ways to evaluate whether a metric is worth tracking.
- Relevance: Does this metric align with your specific business outcomes, like profitability, speed, and accuracy?
- Accuracy: Can you collect reliable, up-to-date data to calculate it?
- Actionability: Will it actually inform decisions or improvements?
Avoid vanity metrics: numbers that look impressive but don’t meaningfully guide decisions. For example, the total number of SKUs tracked might sound impressive—but without turnover or fill‑rate context, it’s not going to help your business do anything better, faster, or smarter.
The bottom line: Smarter tracking starts with simplicity
Meaningful inventory metrics don’t have to be complex. Start with three to four KPIs that map directly to your current pain points, set clear targets, and review trends weekly.
Sortly’s inventory management software makes it simple to measure what matters—no spreadsheets required. With intuitive dashboards, multi‑location visibility, and automated reporting, teams can track inventory levels in real time, streamline replenishment, and improve profitability through better inventory visibility and control.
Start your two‑week free trial of Sortly to start tracking metrics today.
