The ultimate guide to improving your sell-through rate

A sell-through rate is a vital metric for businesses to gauge their efficiency and make informed decisions about inventory. Learn how to calculate it using the sell-through formula and ensure optimized inventory levels.

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Last updated: 20.12.2023 7 mins read
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Have you ever walked into a store and seen the shelves fully stocked with products that never seem to sell? Or, have you ever tried to buy a popular item only to find it’s out of stock everywhere? These are just two examples of how a business’ sell-through rate can impact your shopping experience.

But what is a sell-through rate anyway?

This article examines how to calculate a sell-through rate with the sell-through formula, how to improve your sell-through rate, and why is it important. So, let’s dive in.

What is a sell-through rate?

A sell-through rate is a percentage of products a business has sold in a given period, measured against the amount of inventory available for sale during that period.

In other words, it is the rate at which a business can sell the products it has in stock. It is a key metric that companies use to gauge the effectiveness of their sales and marketing efforts and their ability to meet customer demand and manage inventory levels.

A high sell-through rate generally indicates that a business is doing well. In contrast, a low sell-through rate may suggest issues with the business’ product offering, pricing, or marketing strategy.

Why is a sell-through rate important?

A sell-through rate is an important metric for businesses for several reasons:

  • A measure of inventory management — A sell-through rate measures how effectively a business manages its inventory. By tracking the percentage of products that are selling, a company can optimize its inventory levels, reduce waste and avoid stockouts, which can lead to lost sales.
  • Gauge the success of products and sales — A sell-through rate provides a way to measure the success of products and sales efforts. A high sell-through rate indicates that the product is popular and the sales strategy is effective, while a low sell-through rate may signal that changes are needed in the product or marketing strategy.
  • Inform future buying decisions — By monitoring sell-through rates, businesses can make informed decisions about future buying and stocking. For instance, if a product has a high sell-through rate, the company may decide to order more to keep up with demand. Conversely, if a product has a low sell-through rate, the business may consider reducing inventory or discontinuing the product altogether.
  • Identify potential issues — A low sell-through rate can be an early warning sign of potential issues in the business, such as incorrect pricing, lack of demand, or problems with product quality. Identifying these early on can help companies to take corrective action before they become more serious.
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Overall, a sell-through rate is a valuable metric for businesses to measure the effectiveness of their sales and marketing efforts, optimize inventory levels, and make informed decisions about future buying and stocking.

So, let’s move on and see what is a good sell-through rate you should aim for.

Sell-through rate vs. inventory turnover

A sell-through rate and inventory turnover are both important metrics used to evaluate a business’ inventory management practices, but they measure different aspects of inventory performance.

A sell-through rate is a measure of how much inventory a business has sold during a particular period of time.

On the other hand, inventory turnover measures how many times a business sells and replaces its inventory over a specific period. It is calculated by dividing the cost of goods sold by the average inventory value. It represents the number of times inventory is sold and replaced in a given period.

This metric helps businesses understand how efficiently they manage their inventory and can help them optimize purchasing and replenishment practices.

How to calculate a sell-through rate?

A sell-through rate is calculated by dividing the total number of products sold during a given period by the total amount of inventory available for sale and multiplying by 100 to get a percentage.

Sell-through rate formula:

Sell-through rate = (Number of products sold /  amount of inventory available for sale) x 100%

For example, let’s say that a retailer had 100 units of a particular product in stock at the beginning of the month and sold 80 units by the end of the month. The sell-through rate for the product during that month would be:

Sell-through rate = (80 / 100) x 100% = 80%

So the store sold 80% of its inventory of that product during the month, which is generally considered a good sell-through rate.

What is a good sell-through rate?

A good sell-through rate can vary depending on the industry and the type of product being sold. Most industries have a sell-through rate of 40% to 80%, and anything above 70% can be considered good. Though higher or lower rates may be acceptable depending on the specific circumstances.

For example, a high-end luxury retailer may have a lower sell-through rate but still be successful due to the high price points of their products. In comparison, a fast-moving consumer goods (FMCG) retailer has a higher sell-through rate but smaller margins due to lower price points.

Additionally, seasonal variations can impact sell-through rates, so comparing sell-through rates to historical data or industry benchmarks is important to understand better how well a product or business is performing.

How to improve your sell-through rate?

There are several strategies businesses can use to improve their sell-through rate. Let’s explore some of them.

Optimize inventory management

Businesses can improve their sell-through rate by optimizing their inventory management practices. This includes forecasting demand, ordering the right amount of stock, and managing inventory levels to avoid stockouts or overstocking.

Improve pricing strategy

Pricing can have a significant impact on the sell-through rate. To find the most effective approach, you can experiment with different pricing strategies, such as discounting or bundling products.

Enhance product display and placement

Product display and placement can also impact the sell-through rate. Consider repositioning products or optimizing in-store displays to make them more attractive and easier for customers to find.

Increase marketing and promotion

Marketing and promotion can drive demand and improve your sell-through rate. Try increasing your marketing efforts through social media or email campaigns, and offer promotions or discounts to incentivize customers to make a purchase.

Enhance product offering

Another way to improve sell-through rates is by ensuring product offerings align with customer demand. This may involve analyzing sales data to identify popular products or identifying gaps in the market that can be filled by introducing new products.

Overall, companies can improve their sell-through rate by taking a holistic approach that considers inventory management, pricing, display and placement, marketing and promotion, and product offering. By focusing on these areas, businesses can optimize their sales and improve their bottom line.

How can Katana help to improve your sell-through rate?

Katana manufacturing ERP showing open orders

Katana is a cloud-based inventory and production management software designed to help manufacturers streamline operations, optimize inventory levels, and improve sell-through rates. Here are some ways Katana can help you achieve all that:

  • Inventory management — With real-time inventory tracking and management capabilities, businesses can manage inventory levels more effectively. This helps avoid stockouts and overstocking and optimizes inventory levels to ensure they have enough stock to meet demand.
  • Production planning — Katana allows businesses to schedule production and manage manufacturing workflows more effectively. By having a better understanding of production timelines and capacity, businesses can more accurately forecast demand and ensure they are producing enough inventory to meet customer needs.
  • Sales order management Track orders and shipments to ensure timely deliveries. By better understanding customer demand, companies can optimize their inventory levels and production schedules to meet customer needs and improve their sell-through rate.
  • Cost analysis — Katana has features to help businesses understand the costs associated with their inventory and production processes. This can help companies identify areas where they can reduce costs and improve their margins, which can help improve their sell-through rate.

In addition, Katana offers a lot of integrations allowing you to connect your favorite business tools like QuickBooks Online and Shopify for a unified experience. Try it out now with a free 14-day trial to improve your sell-through rate and optimize your operations.

Henry Kivimaa Photo

Henry Kivimaa

Copywriter

Henry is an avid traveler with a passion for writing. Having lived most of his adult life abroad, he’s amassed a variety of experiences from many different fields. From ForEx trading to compliance to mobile engineering to demolition, he’s definitely not afraid to test out new things.

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