Calculating DOM
3. The Simple Formula for Tracking Days on Market
Calculating DOM doesn't require advanced mathematical skills. In fact, it's a pretty straightforward process. The basic formula is: DOM = (Inventory on Hand / Cost of Goods Sold) x Number of Days in the Period. Let's break that down.
First, you need to know your Inventory on Hand. This is the value of your inventory at a specific point in time, usually at the end of the period you're calculating for.
Next, you need your Cost of Goods Sold (COGS). This represents the direct costs associated with producing or acquiring the goods you sold during the period.
Finally, you need to decide on the Number of Days in the Period. This could be a month, a quarter, or a year, depending on how frequently you want to track your DOM. Plug these values into the formula, and you'll get your DOM in days.
For instance, let's say you have $50,000 worth of inventory on hand, your COGS for the month was $10,000, and you're calculating for a 30-day month. The DOM would be ($50,000 / $10,000) x 30 = 150 days. This means, on average, your inventory sits for 150 days before being sold. That's a pretty high number, and it might be time to take action!
