Understanding Sell-Through Rate

by | Jul 27, 2022 | Data Management, Experts, Retailers

What is sell-through rate?

Sell-through rate is the total amount of inventory sold during a certain time measured as a percentage of the amount of stock received from suppliers in the same period.

For example, a sell-through rate of 10 percent indicates that only a small percentage of the stock a retailer bought goes on to be sold. In this case, stock isn’t moving fast enough to turn a significant profit.

Industry-wide, the standard for a robust, lucrative sell-through rate is around 80 percent. The average is typically between 40 and 80 percent. Sell-through rate is a key performance indicator of the strength of a company’s inventory management, and therefore, its profitability.

That’s why it is crucial to understand how to maintain a consistently high sell-through rate.

How to calculate sell-through rate

Sell-through rates help businesses accurately predict how much stock they need and adjust supply accordingly.

A business can calculate its sell-through rate using a simple formula:

Sell-through rate = (number of units sold/number of units received) x 100

To calculate sell-through rate for a specific period:

  • Determine the total number of units sold in the given period
  • Determine the number of units received in the same period
  • Divide the number of units sold by the number of units received
  • Multiply the figure by 100 to get a percentage

The sell-through rate reveals key areas to focus on, such as which product quantities need to be increased or decreased based on sales data. This figure also suggests how to achieve a more efficient sales and inventory balance to increase profit and minimize waste.

 

Looking for sell-through data for a specific retailer? Get full visibility into your sell-through performance with SPS Analytics. 

 

What is a good sell-through rate?

Sell-through rates tell you a lot about a company’s success.

Most experts consider a stellar sell-through rate as anything higher than 70 percent. And a high sell-through rate demonstrates the company has accurately predicted demand.

Low sell-through rates, on the other hand, may indicate a poor forecast. This suggests the business interpreted retail data inaccurately, which can have costly effects, such as paying more for storage to hold excess inventory.

What about a sell-through rate of close to 100 percent? While more desirable than having a low rate, this means the business may not be taking advantage of market potential. In this case, there may be a surplus of demand that existing inventory isn’t meeting.

How to increase sell-through rate

There are many reasons a company might experience poor sell-through rates or dramatic month-on-month dips in sales performance. Improper demand planning, lack of customer and regional understanding, and absence of real-time data tracking all play a role in a company’s underperformance.

To bolster sell-through rates, businesses need to focus on the following strategies.

Harness the power of data

To maximize sell-through rates, businesses must first identify the factors contributing to poor sell-through and tackle them one by one. This means measuring these factors regularly and making adjustments in real time.

  • Track sell-through rate monthly to spot any inconsistencies and trends throughout the year.
  • Focus on seasonal periods and historical trends to spot inventory that can be adjusted year-round. This may mean increasing or decreasing order volumes.
  • Get more granular with data. For example, break down monthly sell-through rates into weekly data. This also allows businesses to react quickly to real-time trends, increase efficiency and limit waste.
  • Track sell-through rates before, during and after promotions. This data provides valuable insights into adjustments that may improve performance.

The key to these strategies is harnessing retail data. Understanding historical and current trends allows retailers and their suppliers to collaborate and capitalize on sales opportunities.

Get creative with merchandising

Creative merchandising is also a useful tool in boosting sell-through rates on underselling products.

Businesses focusing on high-value items, upselling to new customers and cross-selling to returning customers will reap the rewards of higher sell-through rates.

For example, in brick-and-mortar stores, the psychology of store layouts can be the difference between an impressive sell-through rate and excess inventory. So, using data to recommend efficient floor plans and merchandising layouts can make all the difference in sales performance. This means using seasonal trends and buying habits to optimize store layouts and promotional strategies.

Run promotions

If sales are stagnant and stock isn’t moving as quickly as it’s coming in, implementing offers or promotions may move the dial. For example, retailers may use some of the following strategies to incentivize sales:

  • Bundle slow-moving products with popular sellers at a slightly marked-up price.
  • Include low-value, high-volume stock as free add-ons as part of a promotion.
  • Amend the price point for products with clear promotions.
  • Run wide-scale sales to promote marked-down products.

Sell-through vs sell-out

Many supply chain terms have similar meanings but may refer to different stages of a product journey in the supply chain.

Sell-in refers specifically to the sales from suppliers to retailers, while sell-out refers to the sale by retailers to end consumers. The term sell-through, however, refers to the whole process: the journey of products from suppliers through retailers and to consumers.

Sell-through and sell-out aren’t mutually exclusive, and sell-out is a key aspect in defining a retailer’s sell-through rate.

Can a sell-through rate be greater than 100%?

Yes, a sell-through rate of over 100 percent means that a greater value of inventory sells each month than is received by the retailer. However, while this is more advantageous than a low sell-through rate, it’s not always positive.

A sell-through rate of 100 percent or greater may mean the retailer doesn’t have enough stock available to fulfill orders and is failing to take advantage of its retail data analytics for accurate forecasting. It may also mean the price point is too low, which could impact profits.

To learn more about how to improve sell-through, check out our best practices to drive sell-through or contact us for a personal consultation. 

Joy Spiotta
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