Sell-through rate is a critical metric for businesses to track, but it's often misunderstood. Let’s dig into what it is, why it matters, and how you can improve it.
What is Sell-Through Rate?
Sell-through rate measures how quickly a brand sells inventory compared to how much it receives from suppliers. It's expressed as a percentage and calculated over a specific period.
This is the Sell-Through Rate formula:
Sell-Through Rate = (Number of Units Sold / Number of Units Received) x 100
Example: If you received 100 units of a product and sold 80 units in a month, your sell-through rate would be 80%.
Is Sell-Through the Same as Sell-Out or Sell-In?
Though they all sound similar, sell-through, sell-out and sell-in refer to very different things. Sell-in refers to sales from suppliers to retailers. Sell-out refers to sales from retailers to end consumers. Both are crucial for understanding sell-through, which encompasses the entire process, from supplier to retailer to consumer.
Why is Sell-Through Rate Important?
Sell-through rate is a key performance indicator for several reasons:
- It helps with inventory management. A high sell-through rate indicates efficient inventory management. No over- or under-stocking. Minimized storage costs. Reduced risk of obsolete inventory.
- It drives profitability. Faster-selling inventory means faster revenue generation and improved cash flow.
- It informs demand forecasting. Analyzing sell-through rates helps you understand product demand and forecast future needs more accurately.
- It influences strategic decision-making. Sell-through rate data can inform pricing strategies, marketing and promotions and product assortments.
What is a Good Sell-Through Rate?
While the ideal sell-through rate varies by industry and product, a rate of 80% or higher is generally considered excellent. However, consistently hitting close to 100% might indicate missed sales opportunities due to insufficient stock. It’s important to monitor the sell-through rate in the context of other metrics.
How Can I Calculate Sell-Through Rate?
To calculate sell-through rate, follow these steps:
- Determine the period. Choose the timeframe for your calculation (i.e., month, quarter, year).
- Gather sales data. Track the number of units sold within the chosen period.
- Gather inventory data. Track the number of units received from suppliers within the same period.
- Apply the formula. Divide the number of units sold by the number of units received and multiply by 100.
How Can I Improve Sell-Through Rate?
For lagging sell-through rates, there are a number of things you can do to improve it.
Dig into the Data
When it comes to your sell-through rate, data is your friend.
Track your sell-through rate regularly. Monitor it monthly, weekly, or even daily to identify trends and inconsistencies. You also want to analyze historical data. Look for seasonal patterns and adjust inventory levels accordingly.
There are other data sources to incorporate too. For example, use your EDI data to drill down into your retailer relationships. You can also track your sell-through rate before, during and after
Great Creative with Promotions
You can drive your sell-through rate up by offering discounts and promotions to stimulate demand for slower-moving products. You can also consider bundling strategies and strategic price changes to encourage customers to buy.
Merchandize Strategically
By optimizing store layouts and ecommerce designs, you can improve your sell-through rate. Use data to best practices to design effective floor plans. Embrace modern, data-driven user experience practices to optimize websites. You can even consider cross- and up-sell techniques to recommend related products that you need to move.
Want to Help Improving Your Sell-Through Rate?
From an ecommerce perspective, check out our article on best practices to master Shopify inventory with Lingo or contact us for a personal consultation.
