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Sell-Through Rate

What is the sell-through rate?

If you run a retail business, you will notice that certain items sell out pretty quickly while others may take a while to sell. You can describe how fast an item sells through the sell-through rate. The sell-through rate compares the inventory that enters your store and the inventory that you sell within a period of time, usually a month. Specifically, you divide the amount of items you sell (inventory sold) by the amount of items you acquire for your inventory (inventory acquired):

When using the formula, make sure you use a consistent method for counting the inventory sold and acquired. For example, if you sold 53 printers last August 2021 but at the same time bought 80 printers to restock your warehouse, then you can calculate your sell-through rate of printers as follows:

The sell-through rate of your printers is 66.25%.

When should you use the sell-through rate metric?

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The sell-through rate is one of the simplest but most important metrics you will need to track the performance of your business. If you are in a retail business, you definitely need to calculate the sell-through rate of your products! Even if you are not in retail, as long as you are running a business that relies on maximizing the products sold with the given amount of products acquired, the sell-through rate will be an important metric.

What is the ideal sell-through rate?

The ideal sell-through rate is 80%. Basically, you have to sell four out of five items you have in your inventory.

The acceptable range is from 40% to 80% and beyond.

A high sell-through rate means that you can maintain your stocks with new items. A 100% sell-through rate, however, may not be feasible.

Take note, however, that certain types of products may have a seasonal performance - that is, they are sold best during certain months or events. For example, winter jackets are best sold from November to February of the following year. You will find it best to stockpile and sell these items during those months only.

If you are selling food, however, you need to hit a very high sell-through rate! Products, especially food, have a shelf-life, and if your product gets stuck in your inventory when it reaches the end of its shelf-life, that is automatically a loss.

How can you improve your sell-through rate?

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There are two main ways in improving the sell-through rate of your product.

Increase the units sold

The first main way to bump the sell-through rate is to increase the units sold. There are reasons you are having a hard time selling a certain product, some of them listed below:

Customers are not aware your product exists - customers certainly can’t buy a product that they don’t know exists.
The product is not marketed correctly - using a wrong marketing campaign means your intended market won’t be able to appreciate your product.
The marketing efforts are targeted to the wrong market - you might be running a brilliant marketing campaign but your audience is the people who probably don’t need your product anyway.
Customers have a hard time buying your product - your online store might not be easily accessible, has too many steps just to buy a product, or may be getting warnings from your customers’ software that there is a risk that their credit card details will be stolen by hackers.
Your product is too expensive compared to your competitors’ - might be just pricier or, in the case of equipment, has less functionality compared to your competitors’ products.
Your product isn’t just easily sold - certain products, such as equipment, are not easily sold because they can last long while being used.

The good news is you can always solve these problems. Here are some steps you can do so:

Improve your marketing campaign - a brilliant marketing campaign can bring much-needed awareness to your product among its intended market.
Streamline your customer journey from awareness to purchase - try to strip the process down to necessary steps, preferably done in a few clicks on the laptop or few taps on the phone.
Sell the product at a discount - not always, but you can have regular discount sales of your products during the “dull days” - days where your product is least profitable.
Bundle with high-selling products - certain products, especially accessories to your main products, can be bundled with the main products so they can be sold as well.

Reduce the units you buy for your inventory

Or maybe, you are just buying too much of the product that doesn’t get sold quickly. You can simply reduce the units you buy every month, for example. This frees up some of your funds to buy more units of your high-selling products or you can put those into a marketing campaign.

There is one good way to ensure that you are buying the right amount of units of a certain product: by using data analysis. With data analysis, you can observe whether there are patterns in the sell-through rate of your products over time. You can determine if these patterns are fairly regular; if they are, you can use them as a guide in ordering your products in the future. There is one app I recommend: Lido app. Often the sell-through rate is not available directly on e-Commerce platforms, but Lido makes it easy to calculate. Sign up here.

References

https://www.klipfolio.com/resources/kpi-examples/sales/sell-through-rate

https://corporatefinanceinstitute.com/resources/knowledge/ecommerce-saas/sell-through-rate/

https://www.lightspeedhq.com/blog/sell-through-rate/

https://www.bluecart.com/blog/sell-through-rate

https://gocardless.com/guides/posts/how-calculate-sell-through-rate/

https://www.business2community.com/product-management/4-reasons-your-product-isnt-selling-and-what-to-do-about-it-02327765

https://woocommerce.com/posts/not-selling/

https://zoovu.com/blog/7-reasons-people-dont-buy-from-you/