What is Sell Through Rate? A Detailed Guide for Retailers

Sell through rate is one of the most important metrics for retailers to understand. As the owner of an ecommerce business tracking your sell through rate allows you to make smarter decisions about inventory supply chains, storage, and even staffing.

In this comprehensive guide I’ll explain exactly what sell through rate is why it matters so much, and how you can calculate it for your own retail business. Whether you’re just starting out or looking to optimize an existing operation, read on to learn how maximizing sell through can boost your sales and profits.

What Is Sell Through Rate?

Sell through rate refers to the percentage of your inventory that is sold during a certain time period, compared to the amount that was available for sale.

For example, if you had 100 units in stock during January and sold 80 of them, your sell through rate would be 80% for that month.

The formula is:

Sell through rate = (Total units sold / Total inventory available) x 100

Sell through rate is typically calculated monthly but can be measured for any time period – annually, quarterly, or even weekly.

This metric allows retailers to gauge the demand for their products and see how well their inventory levels match up with sales velocity. A high sell through rate signals that products are selling quickly and demand is strong. A low sell through rate may indicate excess inventory or lack of consumer interest.

Why Track Sell Through Rate?

There are several key reasons why sell through rate is a vital metric for retail businesses:

Identify Best and Worst Sellers

Calculating sell through by product, category, brand, etc. shows you which items are flying off the shelves and which ones are languishing. This allows you to stock more of the top performers and less of the slow movers.

Optimize Inventory Levels

Sell through rate helps avoid overstocking. If your rate drops below an acceptable threshold, you know you need to adjust inventory numbers to align with true demand.

Improve Supply Chain Efficiency

Knowing which products sell best allows you to work with suppliers to maintain adequate stock of hot items. You can reduce supply chain costs by not overordering.

Measure Success Towards Sales Goals

Sell through rate shows whether you’re achieving monthly, quarterly or annual sales targets. It can motivate staff to reach revenue goals.

Spot Cash Flow Issues

A rising sell through rate means your inventory investment is paying off. But lower rates reveal excess stock tying up cash. Tightening inventory frees up capital.

How to Calculate Sell Through Rate

Figuring out your retail business’ sell through rate is straightforward once you have the right sales data. Here are the key steps:

1. Choose a Timeframe – Daily, weekly, monthly, etc. Monthly works well for an overall picture.

2. Gather Total Units Sold – From your POS, ecommerce platform, or inventory system.

3. Determine Total Inventory – Stock available for sale during that period.

4. Plug Into Formula – Units sold divided by total inventory.

5. Compare to Goals – Is your sell through rate optimal? If not, how can you improve it?

You can calculate overall sell through rate or break it down by product line, brand, store location, sales channel, etc. The more granular you get, the more actionable insights you uncover.

Here’s an example for a fictional clothing boutique:

• Sold 150 units in March
• Had 300 units in stock during March
• Sell through rate = 150/300 = 50%

This shows room for improvement in aligning inventory to sales. Let’s calculate sell through by product type:

• Dresses: Sold 50 of 100 available; 50% sell through
• Shirts: Sold 60 of 120 available; 50% sell through
• Pants: Sold 40 of 80 available; 50% sell through

Since the rates are consistent across products, the issue is likely too much inventory overall. The owner now knows to reduce stock across the board.

Sell Through Rate vs. Inventory Turnover

Sell through rate is often confused with inventory turnover, but they are distinct metrics.

Inventory turnover measures how fast inventory sells during a certain period. It calculates the number of times average inventory “turns over” or is sold and replaced.

Sell through rate shows the percentage of total inventory that was sold – the velocity of sales against available stock.

High inventory turnover indicates brisk sales. But high sell through shows enough inventory to match demand. Maximizing both metrics is ideal for retail.

Good Sell Through Rates by Industry

Sell through rates vary widely across industries. Clothing sees more turnover than jewelry or furniture. Some good benchmarks by sector:

• Food & beverage – 25-35% weekly rate
• Furniture – 35-45% monthly rate
• Clothing – 55-65% monthly rate
• Jewelry – 25-35% annual rate
• Shoes – 45-55% monthly rate
• Toys – 55-75% during holiday seasons

For most retail products, 40-60% monthly sell through is average. You want to be near the higher end of your category’s typical range.

Tips to Improve Sell Through

If your rate is lower than optimal, here are strategies to increase inventory turnover:

• Discount stale stock – Mark down slow sellers to move them out.

• Limit excess inventory – Tighten up supply chain to prevent overstocking.

• Highlight top products – Showcase hot sellers prominently in store and online.

• Upsell accessories – Encourage add-on purchases to maximize basket size.

• Adjust prices – Lower prices on dead inventory to spark sales.

• Promote online – Drive web traffic to popular products to boost velocity.

• Remove slow products – Cut the losers so space can be freed up for winners.

• Know seasonality – Factor in how seasonal demand affects sell through.

With some effort, most businesses can improve their inventory turnover. The payoff is huge in terms of increased profitability and efficiency.

Using Software to Track Sell Through

Manually calculating sell through rate for a retail business takes considerable effort. Investing in software makes the process seamless and gives you insights in real time.

Here are some features to look for in a retail management platform:

• Dashboard highlighting current sell through rate
• Ability to calculate by time period, product, brand, location, etc.
• Automatically tracks sales and inventory data
• Alerts for low sell through items
• Historical reporting to identify trends

Leading platforms like Shopify and Square integrate POS, inventory and order management to provide a holistic view of sell through. The data can inform everything from purchasing to merchandising.

For large omni-channel retailers, sell through analytics is a must. It’s difficult to optimize inventory without leveraging technology.

Sell Through Rate FAQs

How often should you calculate sell through rate?

Monthly works best for most retailers to identify trends. But also look at weekly if you have perishable/seasonal products and need a real-time pulse.

What’s a good sell through rate?

It varies widely by industry, but 40-60% monthly is a decent benchmark for many retail products. Strive for the higher end of typical rates.

Can you have too high of a sell through rate?

Yes, very high sell through could mean you’re frequently missing out on sales from stockouts. Have enough inventory to match demand.

What happens if you have low sell through?

Excess inventory ties up your capital and incurs storage costs. Identify and discount slow sellers to free up room for better products.

How do you increase sell through rate?

Mark down stale products, limit excess stock, feature hot sellers prominently, encourage add-on purchases, optimize prices, cut slow movers, and understand seasonal factors.

Get Your Retail Business in Top Sales Shape

Now that you’re a sell through rate expert, you have another useful tool to keep your retail operation running lean and boosting profits. By regularly monitoring sell through trends and taking steps to optimize inventory turnover, you can align supply closely with demand.

The key is to not get complacent just because sales are happening. Look beyond total revenue and understand what inventory is working hardest. Eliminate excess stock that is dragging you down.

Sell through rate is your guide to efficient inventory practices. Use it to make data-driven decisions, motivate staff, please customers with product availability, and unlock capital for growth. Sell more with less on your shelves.