Sell-Through Rate Calculator

Running a successful business is all about efficiency. Companies with well-organized processes tend to have lower costs, higher margins, and more resources to outperform their competitors.

For retail and wholesale companies, stock management is a critical aspect of running a business. Do you know how well your company is in inventory management? You can track it using the sell-through rate.

What Is Sell Through Rate?

The sell-through rate (STR) is an indicator of inventory management efficiency. It measures what percentage of inventory was sold during the analyzed period, so it allows for tracking how quickly inventory investments are turned into revenue.

The sell-thru rate is expressed as a percentage value that shows what portion of inventory bought in a given period was sold.

How to Calculate Sell Through Rate

The sell-through rate can be calculated for a single item, an entire category of products, a specific supplier's products, etc.

In order to calculate the sell-through rate follow the procedure:

1. Determine the group of products you wish to perform a sell-thru calculation. It could be an entire portfolio, some category, or even a single item.
2. Calculate the total amount of pieces sold during the analyzed period.
3. Sum up the number of pieces bought during the period.
4. Divide the number of pieces sold by the number of pieces bought according to the sell-thru formula.

Sell Through Formula

The equation for calculating the sell rate is just a simple ratio of units sold to the units bought.

ST = units_sold / units_boght * 100%

Why Sell Through Rate is important?

While the calculation of the STR rate is straightforward, it is crucial to interpret the result accurately and drive to the correct conclusions.

The sell-through rate allows you to optimize several essential aspects of your business.

1. It shows you which products are overstocked in your warehouse. Items with a low sell-thru rate may ruin your cash flow, force you to run markdowns, and undermine your gross margin and net profit.
2. It helps you identify products with not sufficient stock. Sell Thru rate close to 100% is not optimal as well. It could lead to periods where your bestselling items are unavailable.
3. Regular STR analysis allows you to adjust stock levels to the seasonality and do better on stock forecasting.

Regular and in-depth analysis of this KPI improves your overall return on equity and return on sales, which results in higher EBIT.

What is a good sell-through rate?

A rule of thumb says a good sell-through rate should be around 80% to 90% is ideal. However, much depends on the type of inventory, industry, and how fast you can bring supplies to the warehouse.

For the products with a short expiry date, you need a very high STR, ideally 100%. You could even do a weekly sell-through rate analysis for that kind of product.

For products with an extended expiry date, the right value of this metric could vary depending on the length of the analyzed period. For one month, the sell-through value may not be as significant as a quarter. 

The companies tend to set different KPIs for a month, quarter, and year. For Example:

What is a good sell-through rate for Amazon FBA or eBay?

It is well known that Amazon algorithms reward companies with high order fulfillment rates. So companies with high stock can achieve better results. However, keeping stock too high may tend to undermine your profits. So the best option is to analyze this metric regularly and adjust the stock level to the demand.

How to improve Sell-Through Rate?

If you wish to improve this indicator for your company, you should optimize its components.

1. Increase the number of sold units, either by the increase of marketing budget or by running markdowns.
2. Decrease the number of units bought by better demand planning and forecasting.

Apart from those obvious actions could as well:

• Discontinue the items with poor sales performance. If you have a vast product portfolio, you may be surprised how many of your products don't sell at all.
• Identify the bestselling products and intensify the paid promotion. It may boost your ROAS as well.
• Compare your prices against the competitors to make sure you are competitive.
• Consider dropshipping or just-in-time deliveries. It is good practice to stock bestsellers at your warehouse and order low-performing products when needed.

What are the limitations of Sell Through Rate?

Although the Sell Through Rate provides you with many helpful insights about your company's performance, it has its limitations and cannot be the only factor to analyze. 

1. STR focuses only on the quantities and ignores margins, capital costs, delivery costs, and profitability.
2. One single sale of a large quantity could generate misleading STR value. That's why you should perform STR analyses regularly to find such anomalies.
3. Heavy discounts may radically improve STR for a short period. For example, the Black Friday Sale may lead to short-term sales through rate improvements.

Other helpful tools.

Calcopolis provides several other tools that may help you optimize your business.

If you wish to optimize your inventory management, visit our Economic Order Quantity Calculator. It will help you find the perfect number of items you need to order, considering the demand and holding cost.

Authors

Created by Lucas Krysiak on 2022-09-30 14:09:38 | Last review by Mike Kozminsky on 2022-10-03 12:47:23