Sell-Through Rate: How to Calculate and Improve It
Posted by Alex Samuely on Oct 31, 2023
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In today’s competitive marketplace, retail brands must battle for consumers’ attention and wallet share. This is especially challenging among ecommerce giants that offer a plethora of products and convenient shopping options. As a result, many brands may opt to increase their inventory to attract more consumers. However, to keep turning a profit, brands must ensure they maintain a favorable sell-through rate.
Below, we cover how maximizing sell-through rate can help brands benefit from better inventory accuracy and a more efficient supply chain.
In this article, we cover:
Sell-through rate refers to the amount of inventory a brand sells relative to the number of products bought from the manufacturer.
Brands with favorable sell-through rates can treat those as indication that their sales performance is strong. Those with lower rates may want to review their marketing tactics and inventory management to understand where they can make changes.
The ranges for sell-through rates can fluctuate based on market trends and seasonal products. For instance, if customer demand for a certain type of item is extremely high due to a specific trend, or shoppers clamor to buy particular products during the holiday season, those factors can drive up the brand’s sell-through rate.
To calculate sell-through rate, you divide the number of products sold by the number of products purchased from the manufacturer. Then, multiply that number by one hundred. That percentage is the sell-through rate.
Many brands calculate sell-through rates on a monthly basis to ensure they stay on track to hit sales goals. This then provides companies with multiple benchmarks to review at the end of the year, which they can use to determine whether sell-through rates fluctuate at certain times.
Retail brands seeking a strong sell-through rate should aim for 80% or above. However, according to a study conducted by Coresight Research, non-grocery retailers typically hover around a 60% sell-through rate for full-price products.
Sell-through rates help brands balance supply and demand. If you purchase too many products from manufacturers, you will have lots of leftover stock. This will then eat into profit margins and increase storage fees.
On the flip side, brands that purchase too few products will not meet shoppers’ demands and may end up losing them to a competitor. Retail brands that effectively monitor their sell-through rates will stand a much better chance at ensuring their longevity.
A strong sell-through rate help brands:
Improving sell-through rate involves a combination of strategic planning, efficient operations, and effective marketing tactics. Here are several strategies you can consider:
Understanding your target audience, their preferences, behaviors, and purchasing patterns can help improve your sell-through rate. Use tools to gather data on customer demographics, shopping habits, and product preferences. This insight will help you tailor your inventory and marketing strategies accordingly.
Clienteling, a modern customer service technique that allows brands to build long-lasting relationships with customers, can help you gain next-level customer data. By understanding individual customer preferences, purchase history, and needs, brands can engage customers on a more personal level and drive sales.
For your online store, invest in high-quality product photography and compelling product descriptions to showcase your offerings effectively. Provide detailed information about features, benefits, and usage instructions. Optimize product listings for search engines and e-commerce platforms to improve visibility and attract more potential customers.
In-store, it’s important to place high-demand or featured products in prominent locations to immediately capture customer attention. You’ll also want to implement a logical and intuitive store layout that facilitates easy navigation and minimizes congestion, allowing customers to browse comfortably and efficiently. Regularly update product displays and arrangements to showcase new arrivals, seasonal promotions, and complementary items, keeping the store fresh and engaging for repeat visitors.
Endless aisle technology lets store associates access and sell inventory from a variety of distribution centers and locations. It also offers insight into real-time inventory so they can view the full product catalog across the enterprise.
With endless aisle, store associates can help customers make purchases if their desired items aren’t available in a particular location. For instance, if a shopper wants to buy a shirt not available at their nearest store, an associate can leverage endless aisle technology to check if a nearby distribution center or store location carries the item. If the item is available in another location, the store associate can complete the sale on the spot and ship the item directly to the customer. This allows brands to fulfill orders from a variety of locations, while saving sales.
Brands seeking to move inventory from brick-and-mortar stores can offer customers a variety of store fulfillment options. Store fulfillment allows brands to complete and ship orders from their physical locations. Customers can then retrieve their orders by choosing from buy online pickup in-store (BOPIS), curbside pickup, or ship-from-store options. This clears more space for new inventory. Additionally, shoppers who come in to pick up their order may make a purchase, further increasing the sell-through rate.
Brands can also achieve a better sell-through rate by effectively leveraging retail promotions. Certain types of tactics, like percentage discounts, enable them to move inventory that’s not selling well by advertising a percentage off a certain item or an order threshold. Percentage discounts may also fuel sales from inactive shoppers, motivating them to make impromptu purchases due to the limited-time deal.
Brands with excess inventory that need to sell more units can use tactics such as tiered promotions, buy one get one (BOGO) deals, and other bundling opportunities. These all encourage shoppers to purchase more products in one transaction and are especially useful for selling complementary products – such as socks and shoes – or items with expiration dates or shorter shelf lives.
Brands must maintain up-to-date supply chain information so they can attain a favorable sell-through rate. Inventory visibility refers to the practice of tracking the movement of inventory throughout the sales cycle in real time.
This gives retailers important data on sales, stock levels, and product demand. The data then enables them to make more informed choices related to inventory management. Some of these decisions may include forecasting demand for certain items and avoiding overselling or underselling inventory.
Additionally, inventory visibility can empower store associates to cross-sell or upsell various products. Store associates can also leverage the visibility to drive purchases of current inventory before the retailer buys additional items from manufacturers.
To improve their sell-through rates, brands can invest in solutions like omnichannel order management systems and RFID technology.
An omnichannel order management system captures all customer, inventory, and order data in one platform. It also lets retailers engage in more efficient operations by managing all inventory across the enterprise. They can enable item-level order routing based on availability, location, and fulfillment capacity.
Meanwhile, RFID technology allows brands to track inventory from initial shipment to point of purchase via wireless communication. This ensures a high level of inventory accuracy and supply chain visibility, as they can access real-time data on sales and stock levels at any time and from any location.
Ultimately, setting – and then exceeding – sales goals is key to any retailer’s success. Sell-through rates help brands identify their supply chain’s effectiveness. They also assist brands with standing out in a competitive marketplace.
A favorable sell-through rate indicates that a brand is accurately purchasing top-selling products from manufacturers. A low sell-through rate demonstrates that brands may need to dig into why their inventory is moving slowly.
The good news is that lower sell-through rates are fixable – if retailers are willing to invest in solutions like inventory visibility and omnichannel order management. These solutions will support faster inventory turnover, which will subsequently enhance retailers’ bottom lines.
Interested in learning how your business can improve its sell-through rate? Speak with one of our experts today.
