What is meant by the sell-through rate?
The sell-through rate is an eCommerce metric that helps online stores forecast demand in a more accurate manner. This metric shows you how much inventory you managed to sell in comparison with the amount of inventory that you purchased from a manufacturer or supplier. The sell-through rate is expressed as a percentage figure and is generally calculated for a month.
You could say that your sell-through rate is essentially the relationship between the amount of inventory that you sell and the amount of inventory that you purchase from your supplier or manufacturer during a specified period of time. This metric basically helps you understand how long it takes for your inventory to turn into revenue.
The sell-through rate is a metric most widely used by eCommerce stores and retailers, but it is still important for any business that needs to manage an inventory.
Why is the sell-through rate important?
The sell-through rate is very important because it can have a great and long-lasting impact on a business’s expenses, cash flow, and turnover. It helps you understand which of your products are most popular with your customers and are selling like hot cakes, while also giving you clarity about which of your products are the most slow-moving and aren’t selling as much as you would like them to. You could then take action to discount these items, or use them in upselling, cross-selling, or even make product bundles out of them.
However, if you don’t pay attention to your sell-through rate, you might see that you have too much dead stock on your hands, causing you to incur much higher storage and warehousing costs, and see your inventory management in a mess while you struggle with low conversion rates.
Your sell-through rate is an important eCommerce and retail sales metric because it helps you understand how efficient your supply chain is. A high sell-through rate is always good for your business because if a product is sitting on your shelf for too long, it’s just costing you money and taking up space that could be used for products that would sell much faster.
Your sell-through rate won’t tell you what exactly is wrong, but it can tell you whether something is wrong, and then you can dig in deeper to find the issue and fix it. If you Segment your sell-through rate analysis by your products, you can figure out which products are selling well and which products are selling poorly. This can guide your inventory process and reduce the risk of carrying and being stuck with slow-moving products.
How can you calculate your sell-through rate?
Calculating your sell-through rate can help you understand whether you are getting good returns on the investment that you made in your inventory or not. It is preferred over the inventory turnover rate because the sell-through rate gives you the percentage of inventory that you can sell in a month.
To calculate your sell-through rate for a month, you would need to divide the total number of units that you sold during the month by the number of units that you received at the start of that month. Now multiply that figure by 100 and you have your sell-through rate.
Here is the formula that you can use to calculate your sell-through rate for a month:
Sell-through rate = (Number of units sold during a month ÷ Number of units received at the start of the month) x 100
Calculating your sell-through rate puts you in control and helps you ensure that you don’t tie up your cash in inventory that does not sell fast enough.
What is sell-through vs sell-in?
Sell-through refers to sales that reach the end consumer. Sell-in, on the other hand, refers to sales that a company makes to a retail channel. These are just sales that get the product placed on the shelves where the customer may or may not buy them from. For example, if a company sells its products to a retail chain for them to sell to their customers, this is a sell-in. The products that actually reach the customer would be the sell-through.
What are the benefits of improving your sell-through rate?
Earning more revenue and profits
When you sell more of your inventory in a specific period of time, your revenue and your profits are bound to go up.
Identifying high-performing products
When you improve your sell-through rate, you can see which products caused your sell-through rate to go up. Now you can create a good mix of high-selling products to increase your revenues and profits.
Increasing inventory efficiency
Inventory efficiency is a metric that shows you how effectively you use your inventory to strike a balance between customer demands and warehouse overheads. It’s all about making sure you have the right products, in the right quantities, and at the right time in the most cost-effective manner that is possible. A higher sell-through rate leads to better inventory efficiency.
How can you improve your sell-through rate?
Incentivizing your customers
Offering deals like discounts or even free shipping could incentivize your customers to buy the products that aren’t selling too well.
Improving your sales forecasting
Using data and artificial intelligence tools to improve your sales forecasting helps you avoid ordering too much or too little inventory, helping you ensure that you have the right products, in the right quantities, at the right time.
Upselling and cross-selling
You can increase your sell-through rate by engaging in upselling and cross-selling. You need to offer highly relevant product suggestions here, otherwise, these efforts will fall flat because the customer just won’t care enough about the products that you are recommending.
Product bundling can help you increase your sell-through rate substantially. What you need to do is bundle your slow-moving products with other fast-moving products that they could complement. Now you just have to place a slight discount on the whole bundle and your customers would be tempted to buy the bundle instead of just buying the fast-moving product individually.