Sell-Through Rate

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

What is sell-through rate?

Sell-through rate is typically defined as the total amount of inventory sold during a certain time – for example, monthly – measured as a percentage of the amount of stock received from manufacturers in the same period.

For example, a sell-through rate of 10% indicates that only a small percentage of the stock a retailer has brought from a manufacturer goes on to be sold – meaning stock isn’t moving fast enough in each period to turn a significant profit.

Industry-wide, the standard for a strong, lucrative sell-through rate is around 80% – with the average being anywhere between that and 40%.

Sell-through rate is a key performance indicator of how strong or weak a company’s inventory management is and therefore, how profitable they are.

That’s why it is crucial businesses understand the importance of maintaining a consistently high sell-through rate and how they can go about achieving it.

How to calculate sell-through rate

Sell-through rates help retailers, sellers and e-commerce vendors accurately plan and predict how much stock they’ll need and adjust supply accordingly.

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

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

To calculate sell-through rate for a specific period, follow these easy steps:

  • Find out the total number of units sold in the given period
  • Find out 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 give you a percentage figure

This figure is valuable in revealing the key areas the retailer needs to focus on – such as which product quantities need to be increased or decreased based on sales data – as well as how a more efficient sales and inventory balance can be achieved to increase profit and minimize waste.

What is a good sell-through rate?

Sell-through rates tell you a lot about the success of a retailer.

According to data, a stellar sell-through rate is anything higher than 70%. And a high sell-through rate demonstrates the retailer has successfully and accurately predicted demand – managing to sell the majority of its stock.

Low sell-through rates, on the other hand, may indicate that inventory has been poorly forecasted. This suggests the business’ retail data has been reported or interpreted inaccurately, which can have additional costly knock-on effects, such as having to pay more for storage to hold excess inventory.

Equally, having a sell-through rate of close to 100% – while more desirable than having a significantly low rate – means the retailer may not be taking advantage of market potential. This likely means it’s time to expand, as there may be a surplus of demand that supply alone isn’t meeting.

Referring to real-time and historic sales data is key in scaling demand to turn an even higher profit if the business’ supply chain is agile enough to capitalize on the rising demand.

How to increase sell-through rate

There are many reasons a retailer 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, retailers need to focus on key strategies…

Data, data, data

In order to maximize STR, retailers must first identify the factors contributing to existing poor sell-through rates and tackle them one by one – this means measuring them regularly and making adjustments in real-time.

Maximizing the benefits of your data may include:

  • Tracking sell-through rate monthly to spot any inconsistencies and trends throughout the year
  • Focusing on seasonal periods and historic trends to spot inventory that can be adjusted year-round to maximize STR – whether this means increasing or decreasing orders
  • Getting more granular with data, for example, breaking down monthly sell-through rates into weekly data to better understand consumer habits. This also allows retailers to react quickly to real-time trends, increase efficiency and limit waste
  • Tracking sell-through rates before, during, and after promotions to gain valuable insights into any adjustments that may improve STR immediately or during future promotions

The key to these strategies is harnessing retail data – including the historic and real-time trends that allow retailers to understand and capitalize on sales opportunities.

Our analytics solution aligns all retail data in a single platform, providing the sales and inventory performance data that informs key decisions.

Get creative with merchandising

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

Retailers focusing on high-value items – upselling to new customers and cross-selling to returning customers – will reap the rewards of higher STR compared with those that fail to promote their full range of products.

For example, in bricks and mortar stores, the psychology of store layouts – and their impact on consumers – can be the difference between an impressive STR and excess inventory. So, using data to recommend efficient floor plans and merchandising layouts can make all the difference when it comes to sales performance. This means understanding and capitalizing on seasonal trends and buying habits in store layout and sales and promotions.

Using Electronic Data Interchange (EDI) technology, retailers can harness point of sale (POS) data to cross-promote products, create seasonal promotions, and, ultimately, increase STR.

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:

  • Bundling slow-moving products with popular sellers at a slightly marked-up price
  • Including low-value, high-volume stock as free add-ons as part of a promotion
  • Amending the price point for products with clear dollars-off promotions
  • Running wide-scale sales to promote marked-down products

Sell-through vs sell-out

There is often confusion when it comes to supply chain sales terminology. Many terms have similar meanings but may refer to either specific or more general stages of a product journey in the supply chain.

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

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% means that a greater value of inventory is selling each month than is received by the retailer. However, while this is more advantageous than a low STR, it’s not always positive.

An STR of 100% or greater may mean the retailer doesn’t have the 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 see the business failing to capitalize on potential profits.

At SPS Commerce, we offer a range of solutions that give retailers the valuable insights to understand buying trends, manage product data, and ultimately increase sell-through rates.

View our retail data analytics and fulfillment solutions now.

Sara Marsolek
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