Calculating all the inventory you have sold in an entire month can be a challenge. For that you need STR. What is that you wonder,right? The sell-through rate (STR) as a metric measure the percentage of inventory you sell in a month compared to the ones you receive from the manufacturer.
This STR is one of the three phases of inventory. You should strive for a high STR, as any product sitting on the shelf is tying up money that could be better spent on more popular items. If your STR is low, it signals that there’s an issue needing attention. While it won’t pinpoint the exact problem, it alerts you that there’s a problem.
So, let’s see how to calculate it.
Sell Through Rate Formula
For calculating your STR, you would need the number of units sold in the month and the total number of stocks that were available for that month.
You can also calculate this metric annually, quarterly or weekly. This depends on your sales goals.
A sell-through rate calculator assesses by dividing the total number of products during the given period by the total inventory amount available for sales. Then multiply the fraction by 100 to get the percentage.
The Formula:
| Sell-Through Rate = (Products sold / Available inventory for sale) x 100% |
Example:
For instance, let’s say that the retailer had 100 units of a particular product in stock at the start of the month and sold 80 units of it by the end. Then the STR of the product will be:
[Sell Through Rate = (80/100)x100%= 80%]
The store sold 80% of its inventory for that product within the month, which is typically seen as a strong STR.
The sell through rate is expressed as a percentage, with a higher rate generally being more desirable. It reflects faster inventory turnover and stronger sales performance.
What is the Importance of Sell-Through Rate?
It’s crucial to calculate and know your STR as it measures how efficiently you can sell inventory. It has a direct impact on profitability and inventory management. A high rate means that you have an effective inventory.
Know the Popular and Unpopular Products
Your STR is more than just a blanket statement of your overall sales. Retailers usually calculate their STR by supplier, product line, store location and more.
It can give you valuable insight regarding which product types are most popular. A higher sell through rate means that the product is selling well. You can use this to optimise your inventory accordingly and better meet customer demand.
Reduce Storage Costs
A low STR is indicative of poor inventory management. You must be storing more than you need. So, understand your STR to better maximise your storage and save on storage costs,
Overstocking is expensive and it adds to the cost if the stock is about to expire quickly or may go out of season. Storing unsolid inventory also takes up space that you can use for in-demand products.
To decide if stocking up is worthwhile, weigh storage costs against potential shipping expenses and the profit loss from stockouts.
Next, let’s see how STR affects supply chain optimisation.
Optimising Supply lines
Supply chains may face unexpected delays. Consumers, retailers and vendors as well as manufacturers struggle to resolve the bottlenecks that restrict the smooth functioning of the supply chains.
To ensure their business is not hampered, many retailers tend to bulk order products. They do so without taking into consideration which products will sell better. By having the STR calculation you can avoid this dilemma.
Your STR provides clarity on trending sales, so you can work with your supplier. This allows you to order the correct products before time, focusing on high-selling items.
Measure Success
Every retailer has a goal for their sales number. It helps them to track performance hold their sales associate accountable and motivate their team. For this, you need your STR.
With the STR you can measure your monthly revenue. It helps to identify the opportunities that help to increase sales. You can do so by identifying product lines, store locations, sales channels and more.
Managing Your Cash Flow
Your STR is a way to examine your revenue against the cost of your inventory. An STR, when it drops alerts you that you are spending more money than you’re earning. It means that your profit margin will keep on rising and this will continue until you adjust your inventory orders and storage costs.
S, you need to maintain a good STR. But how to know which STR is good/
Let’s see.
What is a Good Sell-Through Rate?
Sell through rates tell you a lot about your company’s success. Most companies consider a perfect sell through rate to showcase an accurately predicted demand.
On the other hand, low rates of sell through analysis are indicative of the fact that you ordered too much inventory. Or it could mean that the wrong product went to the customers. This suggests that the business did not have the adequate retail data needed or interpreted the data incorrectly, therefore giving a poor forecast.
Such mistakes usually have very costly effects like having cash tied up in goods. You should create contingency plans for markdowns and prepare to pay extra for storing excess inventory.
But what if your sell-through rate is close to 100%? While this is better than a low rate, it might indicate missed opportunities. A rate that high could mean the business isn’t fully tapping into market potential, leading to unmet demand and lost sales for both the company and its retailers.
So, how and why does the STR keeps changing? Let’s see the factors.
Factors Impacting Sell-Through Rate
Both internal and external factors can influence STR. So, here’s a list of the most common things affecting it:
Product Prices
Your product prices influence the purchasing decisions of people. Too high prices will make you struggle to sell your products. Again, too low prices will make your STR too high, making you lose out on revenue.
Product Availability
The way available customers perceive your products can influence your sell-through. If your business has a periodic drop model to build hype around releases, then you can find the STR higher than when products are available at any time.
The variety of products available can also affect the STR. offering too many similar products can make it overwhelming for the customers and make purchasing decisions difficult for them.
Supply Chain Velocity
For selling products, you need to know how to move products through the supply chain quickly and effectively. With high supply chain velocity, you can experience higher STRs, as different processes function together to help inventory go out the door and into the customers’ hands faster.
Competitors
It’s normal to have low STR in a highly competitive market. When customers have options to choose from various sellers, they may go to a competitor that offers the same product at a cheaper price.
Marketing Efforts
Promoting your products effectively typically leads to higher sales and improved sell-through rates. Even if your sell-through rate tends to dip due to seasonal demand shifts, increasing your marketing efforts during these periods can help maintain steady inventory turnover.
FAQs: What is Sell-Through Rate: Definition, Importance and Strategies
What is sell-through rate vs inventory turnover?
This rate measures the inventory amount you sell within a specific timeframe. On the other hand, the inventory turnover ratio measures the number of times you need to replenish your inventory over a given period.
What is buffer stock management?
It refers to the extra inventory you keep at hand in case there are any manufacturing delays or an unexpected demand rise. Calculating the right buffer stock amount to have it helps to keep the carrying cost low ensuring you fulfil all customer orders on time.
What does negative sell-through mean?
A negative sell-through usually indicates that more inventory was returned or cancelled than sold, leading to a decline in stock levels rather than positive sales movement.
Conclusion
To optimise your inventory management and boost profitability, understanding and leveraging your sell-through rate (STR) is essential. A strong STR reflects efficient inventory turnover, reduced storage costs, and improved supply chain dynamics. If you’re aiming to enhance your inventory strategies and drive better business results, Qodenext is here to help.
