Sell-through rate (also known as sell-thru or ST%) is one of the core ways to measure how healthy a retail vendor’s business is. It is a metric that can be used to identify and address a number of problems a business may be facing that aren’t readily apparent, and ignoring an unhealthy sell-through rate is asking for trouble. While it’s definitely important to be shipping out inventory to your retailers, it’s just as critical that the inventory stores already have is moved along at a good clip.

What is sell-through rate?

Sell-through rate is a metric that takes two critical numbers — the amount of inventory shipped to retailers and the amount of inventory that is actually sold to customers — and is usually expressed as a percentage over a period of time, generally either monthly, weekly, or daily. This allows vendors to see what products are moving well, what products are stagnating and where the supply of product accurately met the demand.

Sell-through rate is calculated by dividing your total sales of a product in a given time period by the amount of inventory you had at the beginning of the time period and multiplying by 100 (to give a percentage).

Sell-through rate is especially critical for vendors competing against e-commerce merchants while in brick-and-mortar stores. Online vendors generally don’t have to worry about pre-supplying a variety of retailers and locations and they aren’t constrained by physical space. They can offer a near-unlimited assortment of products that physical stores just can’t compete with because of limited shelf space.

What are the applications of sell-through rate?

Generally, an exceptionally low sell-through rate means that products are not moving well, while a rate that’s too high means you’re cutting it close with inventory levels and an unexpected surge in sales will mean out-of-stocks and disaster.

While the exact numbers you want to target will vary between industries, verticals, categories and products, you ideally want to be somewhere in the middle. You don’t want your products not moving off the shelves and costing you money, but you also don’t want your retailers without stock and unimpressed. A happy medium will depend on your company, products, historical trends, and even seasonality.

Vendors can use sell-through rates to incrementally improve product assortment, assess the demand (and thus the supply) for a certain product, and watch for certain locations where a product performed particularly well or poorly. Understanding your sell-through rate can be the critical difference between a strong, trusting relationship with your buyer and a damaged one.

As well as being able to identify your product superstars, it’s critical to pay attention to the ones that are struggling. This can be an opportunity to hit a home run: proactively being able to see a warning sign such as a low sell-through rate and adjusting accordingly — through promotions, advertisements, product positioning, or price changes — can easily result in a win for both vendor and retailer. Even if certain adjustments aren’t possible, your buyer will appreciate your in-depth knowledge of your business in their store and you can work with them to come up with a solution.

Two sell-through problems to look out for:

While sell-through rate is definitely something you should be paying attention to, it has  a few shortcomings.

A major shortcoming of sell-through analysis is that it’s an indicator that something is awry, but it will not let you know why there’s a problem. A dangerously low sell-through rate tells you only one thing: your products aren’t moving quickly. But it will never tell you why they’re not moving. Is it pricing? The area? Store location? Knowledge of your product, your market and the retailer are all still necessary to succeed.

Additionally, sell-through rate calculations can be significantly resource and time intensive. A large number of SKUs, stores, and raw data means that infrastructure needs to be established before analysis can take place. Collecting and digesting all that information is no small task, and it’s a challenge even the most established vendors have had to tackle.

Askuity collects, organizes, and presents all that data in a user-friendly way. This automation saves time, increases the customization level of reports and metrics for your products, and provides an easy avenue to insights that can benefit your company directly.