As a retailer, there are many metrics and reports that you need to track, and one of the most important retail KPIs to keep an eye on is your sell-through rate. Monitoring and optimizing sell-through will enable you to move products faster, reduce overstock, and ultimately have better cash flow in your ecommerce or retail business.
Let’s break down all the key things you need to know about sell-through and how to improve it.
What is sell-through in retail?
Sell through is a metric that indicates how fast your inventory is selling. It represents the percentage of units sold versus the number of units that were available to be sold.
So, if you stocked 100 units of a product and sell 40 units, your sell-through rate is 40%.
A high sell through rate means you’re selling a product quickly, while a low percentage indicates that SKUs aren’t moving quickly off the shelves.
How do you calculate your sell-through rate?
The retail sell-through rate formula is: Number of units sold / Units received x 100
You’ll need to divide the amount of stock you’ve received by the amount of inventory you’ve sold, and multiply that by 100 to get the percentage.
For example, if you received 200 pairs of socks and sold 175 pairs within a month, you can calculate your sell-through rate as follows:
175 / 200 x 100
SELL THROUGH RATE = 87%
An even easier way to view your sell-through rate is to use a POS and inventory management software that calculates this metric automatically. For example, Vend by Lightspeed lets you generate Product Performance Reports that display your sell-through rate.
This built-in sell through rate calculator makes it easy to measure and compare your sell-through for different products and time periods.
How often should you run the numbers?
You should measure your sell-through rate at least once a month, though there may be times when you’ll need to do it more often or adjust the frequency of your tracking.
For example, if you’d like to measure how your seasonal merchandise performed over the holidays, then it makes sense to track your products’ sell-through during the winter months, then compare each product’s performance. You can then use that info to make decisions about what to stock up on for the next holiday season.
Comparing your week-by-week sell-through rate may also be helpful in determining how items perform overtime. For example, if you discover that products sell faster in the beginning of a season, then you may want to consider stocking up earlier.
Or, if you’re running promotions on select items, measuring their sell-through rate before, during, and after the promotional period can give you insights into how much of an impact promotions have on your sales.
In sum, if you’re wondering when or how often to measure sell-through, keep the following in mind:
- Measure your sell-through rate at least once a month
- Consider measuring it over a given period (like a seasonal period)
- Comparing your week-by-week sell through rate can give you an idea of when to stock items or when to put them on sale
- When running a sale or offer, measure your inventory’s sell-through rate before, during, and after the promotional period
What is a good sell-through rate in retail?
Many experts agree that a good sell-through rate sits at 75% to 80%. The right metric will also depend on your industry. Data from Accelerated Analytics, indicate the following sell-through benchmarks:
It’s also important to remember that a high sell-through rate over a short period of time isn’t necessarily a good thing. If you sell 95% of your inventory in 2 days, then it could mean that you didn’t stock up on enough merchandise or that you priced the items too low. So, while aiming for a high sell-through rate is generally ok, you do have to make sure you’re not leaving money on the table.
Tips to improve sell-through in retail
If you’re consistently getting low sale-through rates, the following steps will help you move your inventory faster.
Continuously measure it
You know what they say — you can’t improve what you don’t measure. So, ensure that you’re regularly keeping an eye on your sell-through rate. In doing so, you can spot trends and make data-backed decisions.
For instance, if you find that an item isn’t selling fast enough, that could prompt you to create a promotional campaign or find a way to get it in front of more customers.
Tracking your sell-through rate consciously also helps you make better inventory decisions. If an item has a sub-par sell-through rate, for example, then you’ll know not to reorder it in the future. On the other hand, if a product flew off the shelf more quickly than expected, then you may decide to order more units going forward.
The point is, you won’t be able to make a smart decision unless you look at the data, so make it a point to keep an eye on your metrics.
Get creative with merchandising
A slow-moving product isn’t necessarily an indication of low customer demand. In many situations, a low sell-through rate could be a result of poor marketing or merchandising.
Perhaps people aren’t finding the product in your store or there is something off with how the item is merchandised and displayed.
In these cases, it’s worth reevaluating your strategies. On the merchandising side, you need to ensure that the necessary SKUs are adequately exposed to shoppers. This could mean putting them in more prominent areas of the store or including them in more displays.
If your inventory really isn’t moving, consider implementing offers and promotions. The right initiative depends on what you’re selling, but here are a few ideas:
- Bundle slow moving merch with popular products
- Give them away as freebies
- Use a straightforward percentage or dollars-off promotion
- Get the product out there using a targeted campaign (like email or social media)
- Hold a massive sale and promote your markdowns
There are many ways to promote your merchandise; it’s just a matter of figuring out the right type of sales promotion, and executing it well.
Sell-through is an important metric that you should never sleep on. Measure it regularly using the formula above, or better yet, use a POS and inventory management system that can effortlessly track your sell-through rate.
And once you have the data, be sure to act on it! Use your sell-through rate to inform your inventory, marketing, and merchandising decisions, then iterate accordingly.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.