One of the tough questions a business always faces is that of how much inventory is needed. While the answer is found by answering the question of how much sales you want to produce, there actuall is a calculation you can make that will help you with determining the exact dollar amount.
Begin this exercise by entering the width and length of the square footage the inventory is going to occupy. This could be a display area or the entire store. The height of the display is not a necessary component of this calculation. The total square footage will then appear in the third line of data.
The next component of information needed is your desired sales per square foot. This is expressed as a dollar amount. The next row will give you a calculation of the amount of sales for the area you are calculating.
The third section is where you enter your anticipated, or desired annual turn rate. Doing so will give you a dollar amount of inventory, at retail, needed for this space . When you enter your gross margin, the last row will calculate for you the amount of inventory at cost.
This calculation helps so that you have enough inventory to produce the results you desire, but not have so much inventory that there are dollars sitting on the sales floor that are not productive.
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