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The sell-through rate is one important inventory measure that helps in demand forecasting. This rate is used to predict product demand, purchase the appropriate quantity from suppliers and steer clear of price reductions/discounts, ultimately increasing profit margins.
What is the sell-through rate?
Inventory sell-through rate is a measure that compares the total amount of goods sold by a store to the amount of stock initially received from suppliers, expressed as a percentage.
Retailers use the sell-through rate to estimate how much and how quickly they can sell the inventory thereby determining how effectively they are turning over inventory and to estimate how soon they can turn a product’s initial investment into income.
How a sell-through report is used:
The sell-through rate is used in various sectors of the retail industry including sales analysis, inventory management, supply chain management and marketing:
To monitor inventory levels by helping to determine how quick inventory is selling out and when new orders need to be placed.
Optimize stock by ensuring that ideal stock levels are maintained by reducing excess inventory and preventing stockouts.
Determine which products sell quickly and those that need to be discontinued, phased out or discounted if the sell-through rate is lower over time.
Helps to measure the performance of individual products, categories or brands.
When measured over a large period of time it becomes easier to identify seasonal trends and fluctuations.
Assists in demand forecasting by predicting future sales based on past performance.
Helps to assess supplier performance by gauging how well products from suppliers sell.
Offers guidance on when to make the next purchase/order from your suppliers.
The sell-through rate helps to evaluate how marketing initiatives and promotions affect the sale of products.
It also guides decisions on where to put products in your stores in order to get maximum visibility and get the most sales.
What are the benefits of measuring sell-through rate?
The main benefit of measuring the sell-through rate is that as a business owner, you are able to understand how fast products sell once they are received from your suppliers. With this knowledge, you can make sure to always have enough stock to meet your customers needs.
Minimising excess inventory can lower overall costs for your business even if you have several locations, huge client base and greater expenses. The money saved from the lower costs can then be channeled to other areas of the business such as marketing.
Limitations of the sell-through report
While the sell-through rate can indicate problems with moving inventory, it does not reveal the causes of the problems.
The retail industry is highly influenced by seasonal trends, therefore, a decline in the company’s sell-through rate may be caused by a seasonal trend although it might not be absolutely clear by only looking at the sell-through rate.
It is important to note that while the sell-through rate is crucial in identifying how quick products move once they are received from your suppliers, it cannot be used on its own and should be paired with other metrics. For one, you should understand your customers needs, local market tendencies and overall trends in your field.
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