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How can you calculate the sell-through rate? Tips on improving it

How can you calculate the sell-through rate? Tips on improving it
The guide breaks down all the critical points related to the sell-through rate. Know about its importance, and learn how to calculate the sell-through rate.
For a retailer, it is essential to keep an eye on metrics and reports that concerns their business. However, the top most important factor to put into consideration is the ‘sell-through rate.’
When you monitor, optimize and calculate the sell-through rate, you minimize overstocking and get to know your client better. Further, it helps move products faster and ultimately leads you to a better cash flow in your e-commerce or retail business.

What is meant by the sell-through rate?

When you stock 100 units of an item and then sell 40 units, the sell-through percentage is 40. If you calculate the sell-through rate of your business, which is high, it indicates that you are selling an item quickly. However, a low percentage suggests your product isn’t selling fast and is up on the racks. For better understanding, look at the example mentioned below:
In other words, when you know how to calculate the sell-through rate, you measure the amount of inventory sold within a specific time relative to the stock received. In conclusion, the rate estimates how rapidly a company sells its merchandise, converting to revenue.
In other words, when you know how to calculate the sell-through rate, you measure the amount of inventory sold within a specific time relative to the stock received. In conclusion, the rate estimates how rapidly a company sells its merchandise, converting to revenue.

Why is the sell-through rate significant in the retail industry?

Retail inventory management is pretty complex but essential in the retail industry. It is one of the significant factors in a critical metric index. However, learning to calculate the sell-through rate is one way to simplify the process.
Moreover, the sell-through rate is essential because:
  • It tells us how well one item is selling as compared to other
  • The sell-through percentage graph describes which month shows better results
  • The rate recognizes which item is sold best in which location
  • It depicts the overall efficiency of the business
How to calculate the sell-through rate?

How to calculate the sell-through rate?

The sell-through rate formula for retail is:
Number of units sold/Units received x 100
From the above formula, you are required to divide the amount received by the inventory products sold. Next, multiply it by a hundred and calculate the sell-through percentage. Barcodes make it easy to track inventory. The warehouse staff can track stock and expiration dates with serial and batch numbers.
Learn how you calculate sell-through percentage with the example below:
  • If you received 200 pairs of socks and sold 175 pairs in a month, you can calculate the rate as follows:
    175/200 x 100 = 87%
  • A local grocery store named XYZ’s owner wants to assess the rate to manage the inventory better. Last month, the store owner received 200 units of items from their suppliers, out of which 140 were sold at that time. Putting the number in the formula mentioned above:
    140/200 x 100 = 70%
    For an owner, 70 percent of sales is a solid result. However, if the owner still wishes to increase the figure in the upcoming days, he can opt for two things. First, he can accelerate sales. For this, he can put in a promotional offer or deal. Secondly, he can order less inventory from the suppliers. This would result in a higher sell-through percentage.
How can you enhance your sell-through rate?

How can you enhance your sell-through rate?

Looking at the above example, you can opt for ways to enhance your rate. The tips to improve the sell-through rate listed as follows are:

1. Launch a deal:

Promotion, offers and deals should be used carefully when it is required. For instance, a product is now longer in season. However, unpopular sizes are left. In this case, you can put a deal or offer and make space for fresh inventory. While this option is tempting to accelerate sales, keep in mind that this would lower the profit margin.
In case you don’t put an offer on the product, and sell it at the total price. The product will be sold in a much longer time. However, the root cause is how much inventory you ordered in the first place.

2. Order less inventory:

If you think you can sell all your inventory within a month, you might be at fault as a business owner. The issue might be that you are ordering too much stock to begin with. From the above example, it can be stated that if the owner had 70 per cent of inventory on sale, they would have a sell-through rate of 100.
Instead of ordering inventory on your gut instinct, it would be better if you did some research beforehand. Consider researching the viability and availability of the item before deferring to a purchase order.

3. Learn creative marketing:

Besides learning when to place an order, you must be aware of how to calculate when to sell a stock. This would help you in having potential sales, boosting your business efficiency.
A product that isn’t selling fast doesn’t indicate that it is because of low customer demand. Most of the time, it is because of poor marketing or merchandising. It might be because people aren’t able to access it in your store, or there is something wrong with how it is displayed and merchandised.
In this situation, it would be worth it if you re-evaluate your marketing strategies. This means you can display it in more prominent areas and include it in marketing campaigns.
What is the difference between the sell-through rate and turnover ratio?

What is the difference between the sell-through rate and turnover ratio?

People often confuse the sell-through rate and turnover ratio. However, there are critical differences between the two, listed as follows:
  • Sell through rate tells owners a percentage of inventory that you are moving through in the warehouse in a month. The higher the number, the higher the sell-through percentage.
  • Turnover ratio deals with the number of inventory your business has sold and replaced during the year.
For most businesses, the turnover ratio isn’t relevant every month, as most of the time, they don’t place purchase orders in a month. For this reason, they calculate sell-through percentages and rate it as a far better short-term analysis tool.
You can learn more about turnover ratio on our website, Asaan retail. Log in to it and familiarize yourself with essential business terms that benefit your business.

In conclusion:

The Sell-through rate is a crucial metric; you should never sleep on it. You can measure it frequently with the formula mentioned above. Or better, you can opt for Asaan retail software that helps you track numbers effortlessly.

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Kamil Riaz Kara

17295

Kamil Riaz Kara is an SEO Specialist by profession and a vlogger associated with Digital Marketing since 2015. He has completed his Masters in Administrative Science from the University of Karachi. As a writer, he has written numerous articles on Technology, Marketing and SEO.

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Kamil Riaz Kara

17295

Kamil Riaz Kara is an SEO Specialist by profession and a vlogger associated with Digital Marketing since 2015. He has completed his Masters in Administrative Science from the University of Karachi. As a writer, he has written numerous articles on Technology, Marketing and SEO.

Linkedin Hm-globe3 Facebook Youtube Instagram
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