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Say you go back through your inventory and order history, and find you’ve sold 500 units of a particular SKU this quarter. 500 units sounds like a lot to sell – but is it actually?
That depends on how much of that SKU you started out with.
To understand whether selling 500 units is a triumph or a disappointment, you’ll need to put it in context. This means calculating the SKU’s sell-through rate – in other words, framing the amount you sold as a portion of your overall stock for the period.
When you calculate sell-through rate, you’ll have the data you need to make the right inventory investments, optimise inventory flow, and minimise storage costs.
In this article, we’ll cover what a sell-through rate is, why it’s important, how to calculate it, and tips for improving it.
What is sell-through rate?
Sell-through rate is the amount of stock you sold during a given time period expressed as a percentage of the total stock you had within the same period.
For example, let’s assume a business wants to calculate the sell-through rate for the previous month. If the business sold 500 units of inventory that month, but began the month with 2,000 units, their sell through rate would be 500/2,000, or 25%.
At the SKU level, sell-through rates give you an estimate of how popular a SKU is (with a high sell-through rate indicating high popularity, and vice-versa).
For a business’s overall inventory, the sell-through rate is generally indicative of the general demand for the brand’s products.
If a brand has a high sell-through rate, that means that there is probably high demand for its products. Conversely, a low sell-through rate may indicate that there is less demand, or that the products are becoming obsolete.
Why sell-through rate is important
While sell-through rate may seem like an insignificant metric, it actually offers your business some very useful insights.
First, sell-through rate is often a good indicator of whether you’re making the right inventory investments. For example, if a SKU’s sell-through rate is low, that means you’ve invested capital in a product or type of product that isn’t very popular. Using this information, you can adjust your inventory strategy to stock up on inventory that’s more likely to sell, and generate more revenue.
Second, calculating your products’ sell-through rates can also help you identify which items are popular with your audience, and which ones are slow to sell. This allows you to gauge audience demand and modify your product mix for optimal sales.
Third, tracking your brand’s sell-through rate helps you better assess your inventory needs. This means you can avoid overstocking and stocking out, and ensure that you always have enough inventory to meet customers’ demand without driving up storage costs.
What is considered a good sell-through rate?
What constitutes a “good” sell-through rate for your business will depend on a number of factors, including seasonality, your brand’s industry, and its specific sales goals.
A sell-through rate higher than 80% is generally considered excellent. While a sell-through rate of 100% is seemingly perfect, it could indicate that there is demand in the market that you’re not capturing, and that you need to order larger amounts of stock.
Sell-through rates lower than 40% are suboptimal, and usually mean that a business should reevaluate its product mix and inventory management strategy.
What factors can impact sell-through rate?
Both internal and external factors can impact your company’s sell-through rate. Here are some of the most common things that can affect it.
Your product pricing hugely influences people’s purchase decisions. Too high, and you might struggle to sell your products; too low, and your sell-through rate becomes extremely high, but you may lose out on revenue.
How available customers perceive your products to be can influence sell-through rates. If your business uses a periodic drop model to build hype and anticipation around releases, you may find sell-through rates are higher than when products are available at any time.
The variety of products available may also impact sell-through rates. Offering too many competing product variations may overwhelm customers, and deter them from purchasing, which would lower sell-through rates.
Supply chain velocity
In order to sell products, you need to be able to move products through the supply chain quickly and effectively. High supply chain velocity typically allows you to experience higher sell-through rates, as different processes functioning together help inventory get out the door and into customer hands faster.
“ShipBob was invaluable in helping us navigate the COVID supply chain crisis, especially during the 2020 holiday season.
Some fulfilment providers keep a curtain of secrecy around their operations, especially when issues arise — but not ShipBob. Even during the worst of the pandemic, they maintained transparency and communicated with us every step of the way.”Aaron Patterson, COO of The Adventure Challenge
If you’re in a highly competitive market, don’t be surprised if you struggle with lower sell-through rates. When customers have the option to choose between different businesses, they might go with a competition that offers the same product at a cheaper rate or with better features.
Effectively promoting your products usually results in higher sales and better sell-through rates. So even if you regularly see a lower sell-through rate due to seasonal demand changes, ramping up your marketing efforts during this time could help keep inventory moving.
How do consumer trends and supply chains affect business sell-through rates?
Changes in market trends influence people’s preferences, which affects their purchases and, in turn, has an impact on your sell-through rate. For instance, you may see high sell-through rates for a certain phone model after it’s just been released. However, the numbers might drop by the following year if it’s replaced by a new model with better features.
Additionally, the popularity of online shopping channels has also had an impact on sell-through rates. During the COVID-19 pandemic, stay-at-home orders caused the percentage of online sales to total retail sales to jump from from 19.1% to 36.3%. Businesses now more than ever recognize that a multichannel approach enables them to reach more customers and capture more of the existing demand for their products, which can lead to a higher sell-through rate.
But a business can’t capture demand from trends and online channels without a good supply chain. Disruptions or issues in a brand’s supply chain can harm sell-through rates, as they make it difficult to offer, sell, and deliver products efficiently.
For example, freight delays caused by the COVID-19 pandemic meant that some factory-to-door delivery times nearly doubled, and inventory took weeks or months to arrive. This caused backorders, disappointed customers, and likely deterred some consumers from purchasing.
Sell-through rate formula and calculation
You can calculate your sell-through rate using the following formula:
Sell-through rate = (Total number of units sold / Total number units received) x 100
Let’s say a stationery brand orders 500 units of a notebook for the month. By the end of the month, it’s sold 400 of those notebooks. In this case, the brand’s sell-through rate for the month would be as follows:
Sell-through rate = (400 / 500) x 100
Sell-through rate = 80%
3 ways to improve your sell-through rate
If your brand is struggling with a low sell-through rate, there are a few different ways to improve it. Here are some of the most effective solutions to issues with sell-through rates.
1. Consistently monitor sell-through rates
Sell-through rate can fluctuate over time, so consistently monitoring it over time can reveal patterns and pinpoint problems that need fixing.
For instance, if you track sell-through rate month by month for a year and notice that it dipped significantly during the winter holidays, you can adjust your inventory and sales strategies during those months the next year to boost sell-through rate.
Sell-through rate is most effective when it’s tracked alongside other important metrics, such as days sales inventory and SKU velocity. By putting your sell-through rate in conversation with other data, your brand can draw better, more useful insights.
2. Market products
Sometimes, low sell-through rates aren’t because of an issue with the product, but an issue with the product’s marketing. When you can get them in front of the right audience and promote them effectively, sell-through rates may improve.
Try coming up with creative marketing strategies or refreshing your existing ones to improve your sales. Marketing tactics such as flash sales and bundle offers are great ways to entice customers to purchase and keep inventory moving.
3. Use inventory management software
Proper inventory management is key to ensuring a healthy sell-through rate. This makes it crucial to invest in inventory management software that will give you real-time visibility into your inventory levels.
ShipBob, for example, enables brands to track SKU velocity over time to identify top-selling and slow-selling items, which helps you optimise your product mix for a better sell-through rate. Similarly, this will also allow you to plan your replenishment strategy to avoid overstocking and stockouts.
Common mistakes that can negatively impact sell-through rate
To improve your sell-through rate, you also need to be aware of the common mistakes that can negatively impact it – and how to avoid them.
Lack of inventory visibility
When there’s a lack of inventory visibility, you can’t always get an accurate understanding of how much inventory you have left or how well certain items are selling. This makes it difficult to plan for customer demand and inventory replenishments.
Subsequently, your brand may end up with too much inventory, too little, or the wrong product assortment – all of which can hurt your sell-through rate.
To get real-time information about inventory, most brands use an IMS. Some tech-enabled 3PLs like ShipBob have inventory management capabilities built into their software, so brands can monitor their inventory levels and fulfilment from a single platform.
“For inventory planning, I love the SKU velocity report, daily average products sold, and knowing how much inventory we have left and how long it will last. The enhanced visibility is great.
With my old 3PL, I could never just open a page and get the info I wanted. ShipBob lets you manage your inventory while providing important data in a very digestible way.
Between inventory forecasting tools and the ability to auto-create WROs, we don’t have stockouts much anymore. I sleep better at night.”Wes Brown, Head of Operations at Black Claw LLC
When you run out of stock, it means customers can’t get the products they need when they need it. Moreover, you may end up over-ordering to make up for the stockouts, which means you could end up with more inventory than you can actually sell.
To avoid overstocking and stockouts, brands should:
- Improve demand forecasts using historical sales data and seasonal trends
- Regularly audit inventory to remove obsolete inventory and deadstock
- Automate restock reminders to time replenishment correctly
- Coordinate with suppliers to avoid delays
Missed promotional opportunities
If you’re failing to promote your products strategically, you could miss out on the opportunity to make sales and improve your sell-through rate.
Brands can maximise their revenue and sales by planning sales, promotions, and other marketing initiatives in advance, and by leveraging every part of their inventory.
For example, a brand can bundle less-popular SKUs with more popular ones to increase sell-through rates, or even include deadstock as free gifts with every order to encourage customers to purchase.
ShipBob’s inventory management capabilities can help sell-through rates improve
As a global fulfilment platform, ShipBob offers ecommerce brands the tools and data insights they need to calculate and improve their sell-through rates.
ShipBob’s software provides comprehensive inventory management capabilities, including real-time visibility into inventory levels across channels and locations. Using our analytics tools, you can:
- Track historical order data over time to generate more accurate demand forecasts
- View inventory levels in real-time for full visibility into inventory movement
- Monitor inventory metrics like SKU velocity and inventory turnover rates to identify popular products and plan inventory accordingly
- Set automatic reorder notifications to help you time replenishment correctly
- Leverage ShipBob’s Ideal Inventory Distribution tool to strategically allocate inventory across multiple fulfilment centres and better meet regional demand
“ShipBob’s software helped us better understand where we should grow next. In the beginning, it was difficult to easily calculate how much we were selling in each region.
ShipBob’s ideal distribution algorithm enabled us to see not only where our customers were based, but where we should allocate inventory to best meet demand.”Natalia Lara, CMO of Oxford Healthspan
ShipBob also provides customers with strategies for offloading hard-to-sell stock. Brands can bundle slow-moving SKUs with more popular ones to encourage sales, or donate excess inventory to charities like GiveNKind, which ShipBob partners with to match donated items with nonprofits in need.
To learn more about how ShipBob can help your brand achieve better inventory management and stock flow, click the button below.
Sell-through rate FAQs
Below are answers to the most common questions about sell-through rates.
What is the difference between sell-through rate and inventory turnover ratio?
Sell-through rate measures the amount of inventory sold within a specific timeframe, whereas inventory turnover ratio measures the number of times you have to replenish your inventory during a given period.
Can sell-through rate be used to measure the success of a promotional campaign?
Sell-through rate can sometimes be a good measure of a promotional campaign’s success, as it gives you an idea of how effectively the campaign was able to drive people to make a purchase.
How can ShipBob help improve sell-through rates?
ShipBob’s fulfilment solutions include software equipped with inventory management capabilities, so brands can have full visibility into and control over their inventory even when it’s stored, fulfiled, and shipped by ShipBob.
Using this software, brands can monitor retail and inventory key performance indicators (such as SKU velocity, inventory turnover rates, inventory on hand, average units sold daily, and days inventory left) to calculate sell-through rate and identify opportunities for improving it.
Brands can leverage ShipBob’s bundling capabilities to facilitate inventory flow, and set automatic reminders to reorder inventory when levels dip below a certain threshold. These features help merchants avoid stockouts and deadstock, and improve sell-through rates.
How can I monitor and track my sell-through rate over time?
Tracks inventory and sales data over time, ideally using an inventory management system (or IMS) that records it automatically. Using that data, you can then calculate sell-through rate for a specific period of time.