Your sell-through rate is the percentage of your inventory sold to customers.
Often calculated monthly, sell-through rates help show sales trends and how different styles and sizes of the same product fare against each other.
If you want to know your customers better and minimize overstocking, calculate your sell-through rate regularly.
What is sell-through rate?
A sell-through rate (STR) measures the percentage of inventory sold relative to the amount of inventory received from manufacturers during the same period.
For performance, your STR is the measurement of monthly sales against a given target. Measuring your STR can help you track sales data, adjust your goals, and keep your supply chain efficient.
Though sell-through rates vary from industry to industry, the benchmark STR is at or above 80%.
Why is sell-through rate important?
Your sell-through rate is an important metric for ecommerce businesses. Here are five reasons why it is useful to calculate:
- Identity popular and unpopular products
- Mitigate storage costs
- Optimize supply lines
- Measure success
- Manage your cash flow
1. Identify popular and unpopular products
Your STR is not just a blanket measurement of overall sales. Retailers often calculate their STR by supplier, product line, store location, and more.
Your STR can offer valuable insight into which types of products are most popular. A high sell-through rate indicates that a product is selling well. This information can be used to optimize inventory and better judge customer demand.
2. Mitigate storage costs
A low sell-through rate indicates that your inventory management is poor and that you’re likely storing more than you need. Use your STR to better understand how you can save on storage costs.
Overstocking is expensive, especially if your stock expires quickly or goes out of season. Storing unsold inventory also takes up space that could be used for in-demand products.
To determine if stocking up is worth it, consider storage costs against expected shipping costs and profit loss from stockouts.
3. Optimize supply lines
Supply chains are prone to unexpected delays. Consumers, retailers, vendors, and manufacturers are still struggling to make up for bottlenecks in supply lines.
Many retailers compensate by overordering before understanding which products will actually sell.
Your STR provides clarity on trending sales, so you can work with your suppliers to order the right products ahead of time, focusing on high-selling items.
4. Measure success
Every retailer has sales goals. They help you track performance, hold your sales associates accountable, and motivate your team.
Your STR helps you measure your monthly revenue and identify opportunities to increase sales by supplier, product line, store location, sales channel, and more. STR can be used to measure sales through any lens and better understand how different parts of your retail or ecommerce business are performing.
5. Manage your cash flow
Your STR is another way to examine your revenue against the cost of your inventory.
An STR that drops tells you that you’re spending more money than you’re making, while a growing STR means that your profit margin is rising and will continue as you adjust your inventory orders and storage costs.
How to calculate your sell-through rate
To calculate your sell-through rate, you need the number of units sold during the month, and the total amount of stock available for sale that month.
You can also calculate your STR annually, quarterly, or weekly depending on your sales goals.
Sell-through rate formula
Use this formula to calculate your sell-through rate:
(total sales / stock on hand) x 100 = % sell-through rate
💡 PRO TIP: Skip the manual calculations and view Shopify’s Product sell-through rate report to see the percentage of your total inventory you’ve sold during a given period.
Sell-through rate example
Let’s look at how you would calculate the sell-through rate on a new product and use the information to make a decision on adjusting your inventory.
You own a bakery and want to start selling cupcakes. For September, you order 1,000 cupcakes, 200 each of five different flavors: vanilla, chocolate, red velvet, carrot, and birthday cake.
At the end of the month, you calculate your sell-through rate to understand how much your customers liked the cupcakes. You learn that of the 1,000 cupcakes, you sold 800.
(800 / 1,000) x 100 = % sell-through rate
0.8 x 100 = 80%
In September, your cupcakes had an overall 80% sell-through rate—so far, so good.
Next, you’re curious how your customers liked each flavor. Red velvet, carrot, and birthday cake are more expensive than the others, so you only want to order those that will sell.
You take the number of sales for each flavor and divide each by 200, the total number ordered:
- Vanilla: (190 / 200) x 100 = 95%
- Chocolate: (180 / 200) x 100 = 90%
- Red velvet: (175 / 200) x 100 = 87.5%
- Carrot: (100 / 200) x 100 = 50%
- Birthday cake: (125 / 200) x 100 = 62.5%
According to September’s sell-through, vanilla and chocolate were the most popular. You’ll order 200 each for next month. Red velvet was also a hit, so you’ll order 200 of those, too.
Carrot didn’t sell as well as you thought, so you decide not to re-order any of that flavor.
While birthday cake didn’t hit your 80% STR goal, it did come close. Some customers did enjoy the flavor, so you’ll only order 100 next month.
Sell-through rate vs. inventory turnover
Inventory turnover is a measure of how frequently you sell your inventory. It calculates the time passed between when you purchased an item and when you sold it to a customer.
Like sell-through rate, your inventory turnover ratio is an integral KPI for decisions regarding pricing, supplier relationships, merchandising, and more.
Inventory turnover ratio
Use this formula to calculate your inventory turnover ratio:
(cost of goods sold / average inventory) x 100 = % inventory turnover
To calculate your average inventory:
(beginning inventory + ending inventory) / 2 = average inventory
Similarities and differences
Like sell-through, a high inventory turnover ratio indicates a healthy sales velocity. However, it can also mean you don’t have enough inventory to support sales at the current rate. A low ratio can mean you have too much stock or low demand.
Another similarity between the two is that they vary between retail categories. For example, consumer packaged goods typically see a high inventory turnover, whereas luxury goods like cars or jewelry have low inventory turnover ratios and longer sales cycles.
While sell-through tells you the amount of inventory sold, inventory turnover tells you the speed of your sales.
Your sell-through rate informs storage, inventory, sales, and merchandising decisions. On the other hand, your inventory turnover ratio helps you make better decisions about pricing, manufacturing, purchasing, and warehouse management.
What is a good sell-through rate?
There is no single answer to this question—it all comes down to what category you’re in and what time period you’re tracking.
The industry-wide standard for a good sell-through rate is 80%. The average sell-through rate typically falls between 40% and 80%, depending on your category.
Average sell-through rates by industry
As noted, different categories tend to have different average sell-through rates. According to Accelerated Analytics, here’s how sell-through varies among eight retail categories across three different time periods:
As you can see, your sell-through rate can increase over time, as more customers browse and buy your inventory. To make meaningful comparisons, it’s important to measure sell-through consistently over the same time period.
How to improve your sell-through rate
So, you’ve calculated your sell-through and find that it’s low. Here are some expert-inspired ways to raise your sell-through rate and improve your retail business.
Lower inventory levels
Retailers can no longer afford to acquire excess inventory and then forget about it. Merchandise that has been available for 10 weeks without selling has a slim chance of selling at a profit, and that chance decreases with each passing day.
If your sell-through rate is trending lower and lower, consider decreasing your inventory levels. You may choose to remove or replace slow-selling products altogether.
Promotions and discounts
If you’re selling your sweaters at full price but not as rapidly as you want, the issue could be how much inventory you ordered in the first place.
Let’s assume an item is out of season, it’s a slow time for your store, or you just have a handful of the less popular sizes left. To create room for new inventory, it makes sense to discount existing products, which incentivizes shoppers to purchase them. Knowing how to apply discounts is important.
“While markdowns are a quick way to enhance inventory turnover, generate cash, keep fresh goods flowing, and remedy purchasing mistakes, they should solve problems rather than create new ones.” said Gerrid Smith, CMO at Joy Organics.
It is a tempting way to boost sales, but keep in mind that you’ll also be reducing profit margins. Discounts and promotions should be applied sparingly and you should always keep your break-even point in mind when running them.
“Before you start mass discounting at a percentage that appeals to you, make sure you’ve calculated how much of a blow your margin will suffer once you’ve put a sale figure on it,” said Gerrid. “A 2% reduction in markdowns results in a profit increase of nearly 1%.”
Seasonality plays a role in how much inventory you sell within a given time frame. For example, your sell-through rate of sandals in December is likely not as high as in May. Similarly, your sell-through rate for Christmas trees is zero in March.
While your STR doesn’t account for seasonality, it may highlight a few products or product lines that are out of season. This can be remedied through demand forecasting.
Nunzio Ross is the CEO and founder of Majesty Coffee. The company boasts a strong, average sell-through rate of 78% on their coffee and espresso machines. Demand forecasting helps them find ways to maintain and improve this key metric.
“[For demand forecasting], our company looks into the seasonal and brand demands from our consumers,” says Nunzio. “This is why we have a recommendations list for both new and old clients on the best machine deals in the market.”
Since STR as a sole metric isn’t enough to forecast demands, Nunzio’s team also looks at order cycle time, perfect order performance, and customer satisfaction levels.
“These metrics reflect in our sell-through data,” says Nunzio. “Ensuring that orders reach our clients on time and in perfect shape is the key. Consumer satisfaction plays a critical role in our STR growth and maintenance.”
Bundling is combining two or more items to be sold at a discounted price. Retailers often use product bundling as a way to cross-sell or upsell as well as reduce the “pain of paying.”
It’s a smart way to sell slow-moving items and surplus inventory, especially if your products expire quickly or go out of season.
Jeff Moriarty, marketing manager at Moriarty’s Gem Art, found bundling has improved their sell-through rate.
“Any time we sell a ring, we introduce a similar pair of earrings that would bundle great together,” says Jeff. “We also offer an added discount if they purchase both.”
More shoppers mean more sales—and a higher sell-through rate. Brainstorm potential marketing strategies to increase the visibility of your retail store.
Consider collaborating with large retailers on initiatives that promote your brand and products to bring new customers in. This could include branded or product-focused remarketing, advertising, or Instagram posts and stories.
You can use social media features to drive visibility, such as the swipe-up function on Instagram Stories or shopping advertising on Facebook. This enables shoppers to go directly to your product page, boosting the probability of conversion.
It may also make sense to collaborate with an influencer or group of influencers that are relevant to your audience, to draw attention to your products.
Sell items faster by optimizing sell-through rates
Keep an eye on your inventory data and prioritize these sell-through strategies when you see merchandise sales slow down. Use your sell-through data to prepare for quick reorders for trending products.
Remember: Proactivity means better profits. Armed with your sell-through rate and a motivated sales team, you can improve retail sales quickly.
To calculate your sell-through, however, you’ll need accurate data and a platform to easily capture it. See how Shopify POS may be the platform you need for your sell-through needs.