What is Sell Through Rate?
Ecommerce business owners are often faced with the challenge of managing their inventory well. If a lot of stock is held by the business, selling them all might turn out to be an issue. On the other hand, if the company does not have enough inventory, it’s hard to keep pace with mounting customer demands.
This boils down that online merchants must strike the right balance between their inventory and the changing trends in the market.
Sadly, 43% of small businesses do not track their inventory, and this could hurt them real bad as companies tend to lose vast sums of money due to over-stocking or under-stocking.
An important metric that can help ecommerce businesses forecast demand accurately is the Sell Through Rate. Sell Through Rate tells you how much inventory is sold compared to the amount of inventory purchased and shipped to you from a manufacturer. It is expressed in percentage and is usually calculated for a month.
With the Sell Through Rate, online sellers can forecast demand for a product, anticipate the time it would take to sell all the products, and procure the right quantities from suppliers and manufacturers.
How to measure Sell Through Rate?
We’ve now established that the Sell Through Rate estimates how quickly you can sell the products and make revenue. In reality, taking account of the Sell Through Rate tells you whether or not you're earning good returns from the investment that you’ve made.
When it comes to a short term analysis, Sell Through Rate is preferred over the inventory Turnover Rate, as Sell Through Rate pulls up the percentage of inventory that you can sell in a month.
Here’s how you can calculate this:
Sell Through Rate = No. of units sold ÷ No. of units received x 100
So, if you have purchased 200 dining tables and, after 30 days, sold 120 of them with 80 units remaining in stock, then your Sell Through Rate would be: 120 ÷ 200 x 100 = 60%
Online sellers should aim for higher Sell Through Rates.
This indicates that the sales are strong, and the inventory is moving out fast. A Sell Through Rate of 80% and above is considered very healthy for the business; anything below 40% is a cause for concern.
Why should Sell Through Rate matter to Ecommerce business owners?
This metric throws light on problems with moving the inventory. Sell through rate can be calculated across brands, product categories, and product types.
It helps you understand whether investing in products of certain manufacturers fetches you a good ROI or not.
Knowing your Sell Through Rate will help you make informed decisions regarding your inventory strategy, such as,
- Sell Through Rate can help ecommerce businesses better manage their inventory as they can arrive at how quickly the products of certain manufacturers will sell.
- It helps identify unexpected sales increases. Online merchants can calculate and monitor the Sell Through Rate of popular items, establish the average Sell Through Rates over a couple of weeks and determine if the sales have increased and what might have led to the increase. They can accordingly bring in additional inventory and generate more sales, maximizing profits.
- Slow-moving inventory can be better managed by calculating this metric. As an ecommerce business owner, if you wish to sell more, you will have to have more of your products in stock. However, if there are items that are not getting sold, it’s essential to identify them. Sell Through Rate can help you decide which items to stock up on and which not to.
How to increase Sell Through Rate?
In today’s rapidly changing ecommerce landscape, businesses need to stay relevant and dynamic. Increasing your Sell Through Rate plays a crucial role in achieving this.
You can increase Sell Through Rate by taking these steps:
- Driving sales through launch activities and promotions
- By ordering less. That is to purchase inventory only by monitoring sales reports and Sell Through Rate. This way, you can order the ideal quantities to meet the demand without too much or too little in stock.
We’ve seen how Sell Through Rate gives you an insight into how quickly products purchased from certain manufacturers sell.
While it is essential to keep the inventory moving out the door, you also need to check up on your customer support service. You can now ensure that you’re keeping your customer happy with DelighChat’s ecommerce helpdesk.