What is Sell-Through Rate?
The Sell-through rate (STR) is a performance metric that tracks the percentage of inventory sold over a certain period of time.
STR can be used to measure the success of a product, track trends, and compare sales across different channels or locations.
How to Calculate Sell-Through Rate
There are a few different ways to calculate sell-through rate. The most common method is to divide the number of units sold by the number of units available for sale.
This gives you your total sell-through rate for that period of time.
You can also calculate sell-through rate by product, channel, or location.
To do this, simply divide the number of units sold for that product, channel, or location by the total number of units available for sale in that category.
For example, if you have 10 products and you sell 100 units total, your sell-through rate would be 10% (100/1000).
If you have 10 products and you sell 200 units of one product and 100 units of another product, your sell-through rate for each product would be 20% (200/1000) and 10% (100/1000), respectively.
Other ways of calculating sell-through rate include:
- Dividing the number of units sold by the number of units available for sale at the end of the period.
- Dividing the number of units sold by the average number of units available for sale during the period.
- Dividing the value of sales by the value of inventory.
- Dividing the number of new customers by the number of impressions.
- Dividing the number of sales by the number of leads.
No matter which method you use, calculating sell-through rate can give you valuable insights into your business.
Why Measure Sell-Through Rate?
There are a few key reasons why you might want to measure sell-through rate.
First, STR can help you assess the overall health of your business. If your STR is low, it could be an indication that your product mix is off or that you need to adjust your pricing.
STR can also help you identify which products are selling well and which ones are languishing on the shelves. This information can be used to make strategic decisions about what products to keep in stock and how to allocate your marketing budget.
Finally, sell-through rate is a key metric for inventory management. If you’re carrying too much inventory, it will tie up your cash flow and increase your storage costs. On the other hand, if you don’t have enough inventory, you risk losing sales to backorders or stock-outs.
By monitoring your STR, you can ensure that you have the right mix of products in stock at all times.
For example, let’s say you run an eCommerce store for designer shoes.
If you notice that your sell-through rate for a particular style of shoe is consistently low (say, below 10%), you might want to consider discontinuing that product.
Remember that it costs you money to keep inventory on hand, so it’s important to make sure that you’re not tying up your cash flow with slow-moving items.
On the other hand, if you have a hot new style of shoe that’s selling out as soon as it hits the shelves, you’ll want to make sure you have enough inventory on hand to meet customer demand.
For another example, let’s say you run an eCommerce store that sells consumables, like organic candy.
You’ll want to keep a closer eye on your inventory levels for seasonal items, like candy corn around Halloween.
If you notice that your sell-through rate for candy corn is high (say, above 80%), you’ll want to make sure you have enough inventory on hand to meet customer demand.
These are just a few examples of how tracking STR can benefit your profitability and overall business health.
What is a Good Sell-Through Rate?
There is no magic number when it comes to sell-through rate.
The right STR for your business will depend on a number of factors, including the type of product you sell, your target market, and your business model.
For example, if you sell high-end products that have a long shelf life (like designer handbags), you might be able to get away with a lower sell-through rate.
On the other hand, if you sell fast-moving items with a short shelf life (like consumables), you’ll need to maintain a higher STR to avoid tying up too much cash flow in inventory.
The best way to determine what STR is right for your business is to track your sell-through rate over time and compare it to your sales and profitability.
If you notice that your sell-through rate is consistently below 10% and you’re not seeing a corresponding increase in sales or profits, you might want to consider increasing your prices or discontinuing certain products.
On the other hand, if you have a high sell-through rate, but you’re not seeing the profits you want, you might want to consider reducing your prices or expanding your product mix.
The bottom line is that the right sell-through rate for your business will vary depending on a number of factors. The best way to determine what’s right for you is to track your sell-through rate over time and adjust your strategy as needed.
How Can I Improve My Sell-Through Rate?
If you’re not happy with your current sell-through rate, there are a few things you can do to improve it.
First, take a look at your product mix. Are you carrying too many slow-moving items?
If so, you might want to consider discontinuing those products or running sales or promotions to clear them out.
Third, invest in marketing and promotion to drive traffic to your store. It’s simple but worth repeating: the more customers you can bring in, the more likely you are to sell through your inventory.
Finally, make sure your prices are commensurate with the fair market value of whatever product or service you’re providing. If your prices are too high, customers will be less likely to buy.
By taking these steps, you can improve your sell-through rate and increase your profits.
Sell-Through Rate Vs. Inventory Turnover
Inventory turnover is a measure of how often a company sells and replaces its inventory over a period of time.
So should you track sell-through rate, inventory turner, or both?
The answer is: it depends.
If you’re a small business with a limited inventory, tracking your sell-through rate can give you a good idea of how quickly you’re selling through your products.
This information can help you make decisions about which products to keep in stock and which to discontinue.
However, if you’re a larger company with a more complex inventory, you might want to track both sell-through rate and inventory turnover.
This way, you can get a complete picture of how your inventory is moving and make better decisions about which products to stock.
The higher your inventory turnover, the more quickly you sell through your inventory and replace it with new products.
In general, a high inventory turnover is good because it means you’re not tying up too much cash flow in inventory.
However, there are some businesses (like retailers) where a high inventory turnover is not desirable because it means they’re not able to keep popular items in stock.
In these cases, it’s more important to focus on sell-through rate rather than inventory turnover.
The Limitations of Sell-Through Rate
Sell-through rate is a helpful metric for managing inventory, but it’s not perfect.
First, sell-through rate only tells you how quickly you’re selling through your inventory, not how profitable those sales are.
So, even if you have a high sell-through rate, you might not be making as much money as you could be.
Second, sell-through rate only tells you about your current inventory levels, not your future needs.
For example, if you have a high sell-through rate for a particular product, you might need to order more of that product to keep up with customer demand.
On the other hand, if you have a low sell-through rate for a product, you might want to reduce your order quantity or discontinue the product altogether.
Third, sell-through rate can be affected by seasonal factors that are out of your control.
For example, if you sell winter clothes, you’ll probably have a higher sell-through rate in the winter than in the summer.
This doesn’t mean your business is doing better in the winter; it just means that people are buying more winter clothes.
Finally, sell-through rate can be affected by changes in customer behavior that are out of your control.
For example, if a new fashion trend becomes popular, you might see a spike in sales for the products that are in style.
Similarly, if there’s a recession, people might cut back on their spending, and your sales will decrease.
Despite these limitations, sell-through rate is still a helpful metric for managing inventory.
By tracking sell-through rate, you can get a good idea of how quickly you’re selling through your products and make better decisions about which products to keep in stock.
Industry Benchmarks for Sell-Through Rates
The following are some general benchmarks for sell-through rate:
- 20% = very good
- 10% = good
- 5% = average
- 2% = poor
Of course, these benchmarks will vary depending on the industry you’re in.
For example, in the retail industry, a sell-through rate of 10% is considered good, while in the food industry, a sell-through rate of 20% is considered good.
In eCommerce, a sell-through rate of 5% is considered average, while in the automotive industry, a sell-through rate of 2% is considered average.
These benchmarks are just meant to give you a general idea of what is considered good, average, or poor for each industry.
You’ll only really know what works for your business by tracking your own sell-through rate and comparing it to your industry benchmarks.
Using Software to Track Your Inventory
If you’re sick of trying to keep all these inventory metrics straight, it’s probably time to invest in some inventory management software.
There are a number of different software programs that can help you track your inventory levels, sell-through rates, and other important data.
SkuVault is inventory management software that can help businesses track their inventory levels, sell-through rates, and other important data.
The software includes features like real-time inventory tracking, order management, and product cataloging.
It also offers a mobile app so businesses can access their inventory data from anywhere.
To learn more about how SkuVault can help you work on your business (as opposed to in your business), schedule a live demo via the button on this page.