Measuring how long inventory stays on the shelves before it’s sold provides critical insight into business efficiency. Days sales in inventory is the metric that helps track this, revealing how effectively stock is being managed and how well inventory aligns with demand.
Monitoring DSI enables efficient inventory management, supports stronger cash flow, and informs smarter operational decisions. In this guide, we’ll explore what DSI means, how to calculate it, and how to use it to improve inventory performance.
Understanding Days Sales in Inventory (DSI)
Days sales in inventory, also known as days inventory outstanding, is a financial metric that measures how long it takes for a business to sell its inventory. In simple terms, it tells you the average number of days stock stays on the shelves before it’s converted into sales.
This number matters. A lower DSI usually means inventory is selling quickly, which can indicate strong demand and efficient stock management. A higher DSI might suggest overstocking, slow-moving products, or a mismatch between supply and customer demand.
For small and mid-sized businesses, DSI is a valuable tool for keeping operations lean. It helps you track how efficiently you’re using capital, make informed purchasing decisions, and forecast more accurately.
Understanding and regularly monitoring DSI can lead to better inventory planning, improved cash flow, and stronger financial health overall.
The Days Sales in Inventory Formula
To calculate DSI, you’ll need just a few pieces of financial data. The formula is:
DSI = (Average Inventory ÷ Cost of Goods Sold) × Number of Days
Let’s break it down:
- Average Inventory: This is the average value of your inventory over a given period, typically calculated as (Beginning Inventory + Ending Inventory) ÷ 2.
It gives a more balanced view of inventory levels, especially if they fluctuate during the year. - Cost of Goods Sold (COGS): This is the total cost of producing or purchasing the goods your business sold during a specific period. It does not include overhead costs like rent or salaries; it’s strictly the cost of the inventory you’ve sold.
- Number of Days: This represents the length of the period you’re measuring. Most businesses calculate DSI monthly (30 or 31 days), quarterly (90 days), or annually (365 days).
Why These Components Matter
Each part of the formula plays a role in showing how efficiently your business moves inventory:
- If the average inventory value is high relative to COGS, DSI will also be high, indicating slower turnover.
- A lower COGS (for the same inventory level) also increases DSI, suggesting you’re holding onto stock longer.
- Choosing the right time frame ensures your DSI reflects seasonal trends or long-term performance.
Understanding these variables helps you diagnose what’s driving your inventory turnover rate, and whether you need to adjust purchasing, pricing, or sales strategies.
Step-by-Step Guide to Calculating DSI
Now that you know the formula, let’s walk through how to calculate days sales in inventory using a simple example. This will help you understand how to apply the formula to your own business data.
Step 1: Gather Your Data
To start, you’ll need three pieces of information for a specific time period (let’s use one year for this example):
- Beginning Inventory: $45,000
- Ending Inventory: $55,000
- Cost of Goods Sold (COGS): $300,000
Step 2: Calculate Average Inventory
Use the formula:
(Beginning Inventory + Ending Inventory) ÷ 2
So:
($45,000 + $55,000) ÷ 2 = $50,000
This gives you a balanced view of inventory held throughout the year.
Step 3: Apply the DSI Formula
Now plug the numbers into the DSI formula:
DSI = (Average Inventory ÷ COGS) × Number of Days
Using 365 days:
DSI = ($50,000 ÷ $300,000) × 365
DSI = 0.1667 × 365 = 60.8 days
Step 4: Interpret the Result
In this example, it takes approximately 61 days to sell through your average inventory. This means, on average, it takes about two months to convert inventory into revenue.
Interpreting DSI Results
Once you’ve calculated your days sales in inventory, the next step is understanding what the number actually means for your business. What’s considered a healthy DSI can vary significantly depending on your industry, product type, and business model.
What Is a “Good” DSI?
In general, a lower DSI is better, as it indicates that your inventory is selling quickly. This often points to strong sales performance, effective demand planning, and optimized stock levels. A higher DSI, by contrast, may suggest slow-moving inventory, overstocking, or inefficiencies in your supply chain or marketing strategy.
However, a DSI that’s too low isn’t always ideal. It could mean you’re running out of stock too often, leading to missed sales and unhappy customers. The key is to strike a balance: your DSI should reflect healthy turnover without putting your fulfillment at risk.
Industry Benchmarks Matter
DSI expectations vary significantly across industries:
- Fashion & Apparel: These businesses typically aim for a lower DSI (e.g., 30–60 days), since trends change quickly and unsold stock can lose value fast.
- Electronics: DSI tends to be slightly higher due to higher item costs and longer sales cycles, which slow down inventory turnover.
- Furniture: These items often have a higher DSI (e.g., 90+ days) due to their bulk, higher price point, and slower turnover.
- Wholesale & Supply Chain: These businesses may operate on extended timelines and maintain larger inventories, so a higher DSI can still indicate healthy performance when supported by steady sales.
The Takeaway
Rather than focusing on hitting a universal “good” number, it’s more useful to track your DSI over time and compare it against similar businesses in your industry. This helps you identify trends, pinpoint operational issues, and spot opportunities to improve your company’s inventory management strategy.
Best Practices for Accurate DSI Tracking
Getting the most value from DSI means going beyond the formula. Here’s how to ensure accurate and meaningful results:
- Keep Data Clean and Consistent: Regularly update inventory records and financial reports. Inaccurate data can lead to poor decisions.
- Track DSI Frequently: Monitor DSI monthly or quarterly, not just annually. Frequent tracking helps you spot patterns, respond to issues, and fine-tune inventory planning.
- Benchmark Against Your Industry: Compare your DSI to similar businesses in your sector. A “healthy” DSI in retail may look very different from one in wholesale or manufacturing.
- Pair DSI With Other Metrics: Use DSI alongside KPIs like inventory turnover ratio, stockout rate, and gross margin for a more complete operational view.
Common Mistakes When Calculating DSI
While the DSI formula is simple, it’s easy to make small errors that lead to inaccurate insights. Here are a few pitfalls to watch out for:
- Using Sales Instead of COGS: DSI measures inventory efficiency based on cost, not revenue. Always use the cost of goods sold (COGS) in the formula, not total sales.
- Skipping the Average Inventory: Using only beginning or ending inventory gives a skewed result. Calculate the average to reflect changes over time.
- Mismatched Time Frames: Make sure your inventory and COGS data cover the same period (monthly, quarterly, or yearly) to avoid distortions.
Tips to Improve Inventory Turnover
If your DSI is higher than you’d like, don’t worry; there are actionable steps you can take to improve inventory flow:
- Refine Your Demand Forecasting: Predict sales more accurately using historical data and seasonal trends to avoid overstocking.
- Promote or Bundle Slow-Moving Stock: Use discounts or product bundles to move excess inventory and free up shelf space.
- Tighten Supplier Coordination: Work closely with suppliers to reduce lead times and order more efficiently.
- Adopt Leaner Inventory Models: If applicable, consider strategies like just-in-time (JIT) inventory to reduce holding costs and improve cash flow.
How Brightpearl Helps You Stay on Top of DSI
Tracking your company’s days sales in inventory doesn’t have to be a manual or time-consuming process. With Brightpearl’s integrated accounting, your inventory and sales data sync automatically in real time, giving you instant access to the key figures needed to calculate and monitor DSI accurately.
With Brightpearl’s built-in accounting tools, you’ll always have up-to-date inventory values and cost of goods sold at your fingertips. This ensures your DSI calculations reflect your current business performance without the need for spreadsheets or manual data entry.
Brightpearl also offers advanced reporting and forecasting features, making it easier to spot trends, improve inventory turnover, and plan with confidence. By centralizing your financial and inventory data, Brightpearl helps you stay informed, make smarter decisions, and drive better operational efficiency.
Putting DSI Insights Into Action
Understanding and tracking days sales in inventory (DSI) gives businesses a clearer view of how inventory is performing and where improvements can be made. When monitored consistently, DSI becomes a powerful tool for supporting smarter planning.
Accurate, real-time insights make all the difference—and the right system can help you achieve exactly that.
Interested in making DSI tracking easier and more effective? Book a demo with Brightpearl to see how our platform can support your inventory and financial goals.
