Reporting & Analysis
12.01.2024
TLDR
Sell-through rate tells you what proportion of your stock is sold. It's a percentage showing the sold items against what you initially had. High sell-through is good; it means you're selling a lot. Low sell-through can mean you've got too much stock not selling. It helps you understand if you're buying the right inventory and if customers like it. It's useful for deciding what to buy, how to price it, and how to market it.
Brands that have 10s or hundreds of SKUs live on their website often miss critical opportunities to identify products that are doing well under the radar. If they aren’t top of mind, you often don’t bother to showcase them to your customers to drive sales. But how do you uncover those hidden gems? How do you avoid stocking obsolete inventory?
Let’s talk about the sell-through rate metric today.
Sell Through Rate (STR) is an important number in e-commerce. It shows how well products are selling. Typically, sell through rate is the percentage of items sold from the total stock received in a certain time. A high STR means products are selling well and inventory is used efficiently. A low STR suggests too much stock or not enough sales.
Understanding STR is key in online shopping because it helps businesses know if they're buying the right amount of products and if customers like what they're selling. It's not just about selling goods; it's also about smart buying to meet customer needs. STR affects how much money a business makes and helps in making better decisions about what to sell, how to price it, and how to market it.
Sell-through rate formula.
Calculating sell-through rate with an inventory management system
If you use an inventory management system, the sell-through rate formula below provides you a good way to calculate sell-through rate:
Sell-through Rate = (Number of Units Sold / Number of Units Received) x 100%
This formula tells you the percentage of products sold compared to how many were originally stocked. For example, if you got 100 t-shirts and sold 50, your STR is 50%. This means half of your stock was sold. A high sell-through rate means you're selling a lot, which is good. A low sell-through rate means you're not selling enough, and you might have too many products sitting unsold.
Calculating sell-through rate within Shopify
But if you use a platform like Shopify, Magento, or WooCommerce, your system likely does not track historical stock information. You might receive 20 units of a product on Day 1 and 50 units of a product on Day 2, and Shopify won’t provide you with the data separately. On most selling platforms, you can only track how many units you currently have.
With that limitation in mind, you should follow this formula to calculate sell-through rate:
Sell-through Rate = [Number of Units Sold / (Number of Units Sold + Number of Units in Stock)] x 100%
You should calculate the sell-through rate as a single number for all your products, as well as track the sell-through rate for each product separately. This will help identify gaps in your sales and inventory strategy over time and make sure you aren’t stuck with outdated products to sell at a loss.
If you are an Airboxr user, you can find the sell-through rate of every product by running the Sell-through Rates by Products report.
Now let’s talk about how this metric can be improved.
Better inventory management
Balance Supply and Demand—Match what you have in stock with what customers want. If winter jackets are popular, stock more of them and less of summer clothes.
Use Data Analytics for Forecasting—Utilize past sales data to predict future trends. For example, if last year's data shows high sales in running shoes in March, prepare by stocking up before March this year. Use Airboxr to track the sales of your products over time and find signs of saturation.
Regular Review of Stock—Consistently check your inventory. If certain products aren't selling, consider implementing discounts or promotions to move them faster.
Manage Supplier Relationships—Maintain good relationships with suppliers for better deals and flexibility. Negotiate for smaller, more frequent deliveries to avoid overstocking.
Proactive pricing management
Dynamic Pricing Models—Adjust prices based on demand, competition, and market conditions. For example, increase prices for hot-selling items and lower them for slow movers.
Discounts and Promotions—Use discounts strategically to boost sales of slower-moving products. For instance, offer limited-time discounts on older inventory to clear space for new items.
Seasonal Pricing—Adjust prices according to seasons or holidays. For example, price up on swimwear in summer and down in winter.
Bundling Products—Combine slow-selling items with popular ones at a discounted bundle price. This can encourage customers to purchase more. Conduct a Market-Basket Analysis with Airboxr to find opportunities for bundling.
Price Matching—Offer to match competitors' prices to attract customers looking for the best deal. This can be especially effective in highly competitive markets.
Targeted marketing and merchandising
Targeted Marketing Campaigns—Create marketing campaigns aimed at specific customer groups. For instance, if you're selling sports equipment, target fitness enthusiasts through social media and email campaigns.
Effective Online Merchandising—Display products attractively on your website. Use high-quality images and detailed descriptions. For example, highlight best-sellers and new arrivals on the homepage.
Targeted Email Campaigns—Send personalized product recommendations and offers to customers based on their previous purchases and browsing history. Use Airboxr to find cross-sell opportunities within your products.
Customer Reviews and Testimonials—Display positive customer reviews prominently. Real customer experiences can persuade new customers to buy.
Optimized inventory assortment
Diversifying Product Range—Offer a variety of products to appeal to a broader audience. For example, if you sell outdoor gear, include a range from budget to high-end products. Use Airboxr to figure out which categories are doing well.
Focusing on High-Demand Items—Identify and stock more of the products that sell the best. Use sales data to spot these popular items.
Regularly Updating Inventory—Keep bringing in new products to keep the inventory fresh and interesting. For instance, add new book titles every month if you're a bookstore.
Aligning with Market Trends—Stay updated with current trends and adjust your product offerings accordingly. If eco-friendly products are trending, start including more of them.
Listening to Customer Feedback—Pay attention to what customers are saying. If they are asking for a specific type of product, consider adding it to your inventory.
Fast-fashion brands understand sell-through rates better than anyone else. Zara has achieved a 85% sell-through rate through these core actions:
Vertically Integrated Production & Distribution—Zara controls its entire supply chain, including design, production, warehousing, logistics, and distribution. This allows efficient and timely deliveries to stores.
Agile Design and Manufacturing—The brand can rapidly convert designs into trend-dependent items, with 85% of factory capacity reserved for in-season stock adjustments.
Responsive Demand Management—Zara's system enables real-time response to market demand, allowing most of their stock to be sold at full price.
While vertical integration might not be every brand’s cup of tea, understanding customer needs and being responsive can help you achieve the right sell-through rates.
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Bonus! Inventory Turnover Ratios
Inventory turnover ratio for ecommerce companies is a measure of how many times inventory is sold or used over a specific period. It helps understand the efficiency in managing and selling inventory.
Calculation:
Determine the Cost of Goods Sold (COGS) for a specific time period.
Calculate the average inventory for that same period.
Use the formula: Inventory Turnover = COGS / Average Inventory.
"Average inventory" refers to the average value of inventory held by the company over a specific time period. It's calculated by adding the value of the inventory at the beginning of the period to the value at the end of the period, and then dividing by two.
For instance, if an ecommerce store's COGS is $100,000 for a year, and its average inventory value during that year is $25,000, the inventory turnover is: $100,000 / $25,000 = 4. This means the inventory was sold and replaced 4 times in the year. Use Airboxr’s active inventory report to find the value of inventory you have right now.
A good inventory turnover ratio is typically between 5 and 10, i.e., you sell your inventory in its entirety every 1-2 months.
Use inventory turnover in conjunction with sell-through rates to find a delicate balance between sales and COGS management. Eventually every business is different: do not compare your sell-through rate and inventory turnover with a competitor to decide your strategy. Instead, track your own improvement over time to design a benchmark that works for you.
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