Sell-Through Rate - What is it?
Sell-Through Rate is a way to measure the number of products sold in a month compared to the total inventory at the beginning of that month. In other words, it measures inventory sold vs. inventory on-hand for a given time period and measures how long it takes to turn that inventory into sales.
Formula for Sell-Through Rate
(Number of units sold/Number of units received) * 100
Why is Sell-Through Rate important?
Sell-Through Rate is an important metric, especially in retail sales, that helps companies assess how efficient their supply chain and operations are. In low-margin businesses (like retail) the Sell-Through Rate is helpful because financial health can’t be measured by turnover alone.
Organizations should aim to have a high Sell-Through Rate. Why? Any products that you have on hand cost you money. If you don’t have a high Sell-Through Rate for a given product, that space, time, and energy could be used for better selling products. The better you understand this figure, the more able you are to identify product performance.
Products with low Sell-Through Rates, for example, should be the ones you should discount or sell as part of bundle deals.
Important Considerations for Sell-Through Rate
While an analysis of your Sell-Through Rate can be impactful, it only indicates whether or not something is wrong. It doesn’t necessarily tell you what is wrong.
Segmenting Sell-Through Rate analysis by products or product lines can show you insight into what is selling well (and what isn’t). This can help you optimize your supply chain, review and iterate inventory processes, and reduce the risk inherent to carrying products that are slow to sell. The Sell-Through Rate also lends valuable insights around things like the seasonality of product sales.