Calculate Inventory Outstanding Formula Used By Shopify D2C Brands

By Youri Moskovic
Last Updated:
July 16, 2024
time

What is Days Inventory Outstanding - A Quick Explanation

Days Inventory Outstanding, or DIO, is a financial ratio that measures the average number of days a company holds inventory before selling it.

A lower DIO indicates that a company is more efficient at converting its inventory into sales. This metric is particularly important for Shopify brands where inventory management directly impacts cash flow and operational efficiency.

How to Calculate Days Inventory Outstanding (DIO)

       
  1. Determine Your Cost of Goods Sold (COGS): This is the total cost of all inventory sold over a specific period.
  2.    
  3. Calculate Your Average Inventory: This is the average value of inventory held during the same period. You can find this by adding the inventory value at the beginning and end of the period and dividing by two.
  4.    
  5. Apply the DIO Formula: Days Inventory Outstanding (DIO) = (Average Inventory / COGS) × 365

Prediko: Simplifying Your Inventory Management

Here is how Prediko can help you calculate your days of outstanding inventory (DIO).

The Prediko Buying Table gives you easy access to the information you need to calculate your Days Inventory Outstanding. Alongside every SKU and even at an aggregate level, you will find COGS as well as your average inventory through the defined period.

You can then easily use these numbers to calculate and improve your DIO.

Analysing the Value for Days of Inventory Outstanding (DIO)

A Low DIO for Your Shopify Store Might Indicate

A low DIO for your Shopify store might indicate

  • A low DIO indicates that a brand is selling through its inventory quickly. This is a sign of high demand for the company's products and efficient inventory management.
  • However, if the DIO is too low, it might also indicate inadequate inventory levels, which could lead to stockouts and potentially lost sales

A High DIO for Your Shopify Store Suggest

  • A high DIO implies that inventory is sitting unsold or idle for longer periods. This could be due to overstocking, lower demand for the company's products, or inefficiencies in the production or sales processes.
  • High inventory levels can tie up capital that could otherwise be used for other operational needs or growth opportunities

Strategies to Improve Days of Inventory Outstanding For Your Shopify Brand

       
  • Inventory Forecasting: Utilize advanced analytics and forecasting tools to predict sales trends accurately. This helps in maintaining optimal inventory levels—enough to meet demand but not so much that it ties up unnecessary capital. Use Prediko’s 14-day Free Trial to forecast your inventory demand.

    Use Prediko's 14-day Free Trial to forecast your inventory demand
       
  • Supplier Relationship Management: Develop strong relationships with suppliers to improve lead times and negotiate better terms. Faster, more reliable deliveries from suppliers mean you can afford to hold less inventory.
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  • Product Portfolio Optimization: Regularly review and adjust your product portfolio based on analytics available within your Shopify admin. You can use Prediko’s Buying Table to easily fix the problem of optimizing your existing product portfolio.
Ready to manage your inventory
without ripping your hair out ?