How to calculate sell-through rate

We previously looked at the definition of the sell-through rate, how it is used in the business world, its importance and the limitations. In this article, we will look at how it is calculated and how it can be improved.  

How to calculate sell-through rate

The sell-through rate is calculated by dividing the total number of goods sold by the total amount of units received/bought from suppliers and then multiplying by 100. 

It is often calculated every 30 days. If the item is still not sold after more than 120 days, then it is considered dusty inventory and should be discounted and sold to make room for new seasonal products that can be sold at the entire markup price. 

Example: 

ABC Store is an apparel store that sold 100 units of swimsuits in the past month out of a total 250 swimsuits that was received from its suppliers. The sell-through rate is calculated as: 

A sell-through rate of 72% is a good indication of the business’s ability to quickly sell its stock. However, if there is a need to increase this figure in the future, then the first option is to increase the number of sales by either giving more promotions or discounts. The other option is to buy less stock from the suppliers.  

A high rate is an indication that your business sells most of its inventory received in a period and does not need to spend a lot of money to stock excess inventory. 

Conversely, low sell-through rates could mean that excess inventory was purchased or that the wrong product was offered to the consumers. This effectively costs your business more money taking valuable shelving space and tying up cash that could be used on fast-moving items or other activities. 

On the other hand, while a high sell-through rate is more desirable, a rate closer to 100% may indicate that the business is not utilising its full potential in the market. This means that there may be more demand than the inventory can meet resulting in losses from losing potential sales. 

How can the sell-through rate be improved? 

Underperformance in a business many times occurs as a result of poor demand planning, a lack of knowledge about customers and the local market. When this happens, sales decline and the sell-through rates may also drop and there may be a need to improve these numbers.

• Make the most out of your data - in order optimise the sell-through rate it is important to first identify the causes of low sell-through rates, and address each one individually. This is only possibly by closely monitoring the performance of your business. 

  • Identify trends and inconsistencies by tracking the sell-through rate on a monthly-basis. This can further be broken down into weekly and daily data allowing quick response to trends in real-time hence boosting productivity. 

• Identify inventory that can be modified throughout the year while looking out for seasonality and trends. For example, in the apparel business, it would make more sense to stock more swimsuits as the summer season approaches and when winter approaches, stock more sweaters. 

• Examine the sell-through rates prior to, during, and after promotions and markdowns. This data offers insightful information on changes that could enhance performance.

• Effective merchandising - this involves activities such as bundling complementary products together to encourage additional sales and placing high-demand and high-margin items in high-traffic areas of your store. 

• Run offers, promotions and markdowns if you notice that your stock is not selling out as quickly as it is coming in. 

• Introduce products that are in line with your customer needs and preferences based on their feedback and market research. This will reduce chances of your inventory gathering dust on the shelves. 

• It may also be beneficial to train your staff on product knowledge, sales techniques and improving customer service to ensure their effectiveness on driving sales numbers higher. 

Our sell-through report on the ForecastingApp helps you make informed decisions by identifying items that sell quickly and with the added functionalities to filter the products by location, product groups, categories, seasons and vendors/suppliers. Experiment with it and experience how you can optimise your inventory levels and boost your sales.