What is Sell-Through Rate and Why Does it Matter?

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.

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.

Sell-through rate is a key performance indicator for several reasons:

1. 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.
2. It drives profitability. Faster-selling inventory means faster revenue generation and improved cash flow.
3. It informs demand forecasting. Analyzing sell-through rates helps you understand product demand and forecast future needs more accurately.
4. It influences strategic decision-making. Sell-through rate data can inform pricing strategies, marketing and promotions and product assortments.

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.

To calculate sell-through rate, follow these steps:

1. Determine the period. Choose the timeframe for your calculation (i.e., month, quarter, year).
2. Gather sales data. Track the number of units sold within the chosen period.
3. Gather inventory data. Track the number of units received from suppliers within the same period.
4. Apply the formula. Divide the number of units sold by the number of units received and multiply by 100.

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.

From an ecommerce perspective, check out our article on best practices to master Shopify inventory with Lingo or contact us for a personal consultation.

Frequently Asked Questions About Sell-Through Rate

What is sell-through rate?
Sell-through rate measures how much inventory is sold compared to how much was received from a supplier during a specific period. It’s expressed as a percentage and is used to evaluate inventory performance.

How do I calculate sell-through rate?
Use the formula:
Sell-Through Rate = (Units Sold ÷ Units Received) × 100
For example, if you received 100 units and sold 80, your sell-through rate is 80%.

How is sell-through different from sell-in and sell-out?
Sell-in refers to sales from a supplier to a retailer. Sell-out refers to sales from a retailer to the end consumer. Sell-through considers both, focusing on how much of the received inventory has actually been sold to customers.

Why is a high sell-through rate important?
A high sell-through rate indicates strong product demand and efficient inventory management. It helps reduce carrying costs, improve cash flow, and guide better purchasing decisions.

What is a good sell-through rate?
While it depends on your industry, a sell-through rate of 80% or higher is often considered excellent. However, hitting 100% regularly may indicate understocking and missed sales.

How can I improve my sell-through rate?
You can improve sell-through by analyzing sales and EDI data, running targeted promotions, bundling products, optimizing your online and in-store merchandising, and adjusting pricing strategies.

Should I monitor sell-through rate regularly?
Yes. Tracking your sell-through rate weekly or monthly helps you identify slow-moving inventory, optimize reorder timing, and respond to demand changes faster.