Even if your shelves are always stocked, you’re missing out on critical inventory management insights if you don’t understand of how quickly your product is moving. That’s where the sell-through rate (STR) comes into play.
STR is a critical measurement of monthly sales against a given target. It’s a retail key performance indicator (KPI) that helps you track your sales and guides you in strategically adjusting your goals to keep your supply chain efficient.
Let’s talk about the sell-through rate and how using it can benefit your retail business.
💡 Key Takeaways:
- A sell-through rate measures the percentage of inventory sold compared to the amount received.
- A high sell-through rate indicates high sales, while a low sell-through rate indicates overstock, a low-performing item, or deadstock.
- Calculating sell-through rates gives retailers critical insight into inventory turnover and product performance. This knowledge is the key to making informed stocking decisions, ensuring you always have the right products at the right time.
- Use the formula (Units Sold / Units Received) x 100 to determine the sell-through rate.
- Businesses can improve sell-through rates by analyzing sales data, adjusting pricing, and altering their product assortments based on performance.
What Is Sell-Through Rate?
A sell-through rate (STR) is a key performance indicator (KPI) that measures the percentage of inventory sold during a specific time period against the amount of stock received from suppliers or manufacturers during the same period.
Retailers typically calculate STR monthly. They use it to understand trends in their inventory turnover and how well different products are performing on their shelves.
STRs vary according to industries, but the benchmark—the number retailers should aim for—is around 80%. With an 80% STR, you know that 80% of your inventory has been sold, and you can trust that sales cycles and inventory turnover are running smoothly.
Why Is Sell-Through Rate Important?
The sell-through rate is a key metric for measuring retail inventory return on investment. It can help businesses ensure their products are selling adequately, inventory is turning, and customers are satisfied. STR is an excellent tool to measure the effectiveness of the merchandise you purchase and make decisions about what to stock and how often to restock it.
Businesses of any size can benefit from tracking their sell-through rate each month. For example, large companies with multiple locations, large customer bases, and higher expenses must take extra steps to avoid excess inventory. Even slight gluts in certain products will lead to significantly reduced storage costs and the inability to stock other items. The same is true for smaller retailers, but on a lesser scale.
Some retail POS systems include robust reporting and analytics features that make calculating sell-through rates easy and automatic. If automation is essential to you, contact your POS system’s support team to see if the sell-through rate is something you can track.
Inventory management headache?
KORONA POS makes stock control easy. Automate tasks and get a clear picture of your entire inventory.
How to Calculate Sell-Through Rate
“How do I calculate the sell-through rate?” you ask. It’s simple, and there are several ways to do it.
Calculate the Sell-Through Rate Using a Formula
One way to calculate STR is to do it yourself—the old-fashioned way—using a formula. This is a great method for smaller businesses that need quick calculations using concrete data. Plug away on a calculator, and you’ll have some answers about your inventory turnover quickly.
To manually calculate the sell-through rate, use the following formula:
Calculate the Sell-Through Rate Using Our Calculator
We’ve created a free calculator that lets you calculate your STR in a few easy clicks. All you need is your inventory data. Once you have your numbers, just plug them in.
(Remember that the number of units sold and those received must fall within the same period of time to calculate STR accurately.)
Calculate the Sell-Through Rate Using Your POS System
You can also leverage a POS system with analytics tools to calculate STR automatically. The right system will automatically track your inventory and provide the STR for customizable periods of time. This gives you easy and automated insight into your inventory turnover. More on that later.
(Note that most retailers calculate their STR every month to identify slow moving items. If an item sits on your shelf for 180 days or more, you might want to make space for a different product—something that will sell faster.)
Sell-Through Rate Example
Let’s run through an STR example together to get you up to speed:
An apparel retailer purchases 200 crew neck t-shirts for the summer season. Within a month, they’ve sold 120 of those same t-shirts. To calculate the t-shirts’ sell-through rate, the retailer does the following calculation:
Sell-through Rate: (# of t-shirts sold / # of t-shirts purchased) x 100
Plug in your numbers: (160 / 200) x 100
Final answer: 80%
A sell-through rate of 80% is generally considered very good, especially for a smaller retailer. Though we mentioned 80% as the general retail benchmark, a good STR depends on your business model, seasonal patterns, historical trends, and whether or not you’re meeting your goals.
What Is a Good Sell-Through Rate?
A “good” sell-through rate always depends on your industry, product type, and business goals. Calculating the STR for a random product over the course of a random week is not really going to give you much insight. Instead, think about it with a bit more nuance based on the factors below.
- Retail Industry Average: In most contexts, retailers target a goal of an 80% STR, though anywhere between 50% and 70% is typically considered healthy. These numbers (and anything above them) suggest that your stock is moving quickly and that you’re likely managing your inventory well.
- High-Performance Retail: If you hit numbers above 70%, you can rest assured that your retail inventory turnover is in a good place. Moreover, an 80% STR or anything above that points to excellent performance, high customer demand, and successful product offerings.
- Product Type: Some items will inherently move faster than others; it just depends on what they are. For example, consumer goods and popular products might fly off the shelves, while a luxury vehicle could sit in the lot for months before a sale. Look to inventory standards for each product type to understand how you’re doing.
- Seasonality & Context: Do you sell handmade wrapping paper? If so, your STR will probably be higher during the holiday season and lower during the rest of the year. Track your STR over extended periods to understand your business’s health year over year and season over season.
- Historical Comparison: Most business owners want to perform better each year. If your STR is higher this year than last, that’s a positive sign. Compare your STR to your historical data to ensure your inventory management is improving (or at least consistent).
Get started with KORONA POS today!
Explore all the features that KORONA POS has to offer with an unlimited trial. And there’s no commitment or credit card required.
How to Improve Sell-Through Rate
Is your sell-through rate not entirely where you want it to be? Fret not—many strategies exist to improve retail inventory management and STR. Here are some actionable steps to increase your STR:
Optimize Pricing Strategies
If your products aren’t selling, they might be priced too high. In this case, you should adjust your prices based on demand, competition, and inventory levels, and always make sure your prices are competitive within your market to attract customers and maximize profit.
Offer Discounts
For the items collecting dust on your shelves, you can leverage promotions and discounts to get things moving. Markdowns are a quick way to improve your inventory turnover (and, therefore, STR), but they reduce your margins. Offer your customers discounts, but always remember your break-even point when doing so.
Bundling
You’ve seen it before: “Buy One Get One Free.” It’s called bundling, which involves combining two or more items to be sold at a discounted price to cross-sell or upsell their goods. Bundling works exceptionally well for slow-moving items, especially when products are perishable or seasonal.
Examine Seasonality
Seasonality can affect how your inventory sells within a given time frame. You’re probably not selling full-priced fur coats in the summer, nor will you fly through strappy sandals in the winter.
STR doesn’t account for seasonality per se, but it might point to out-of-season products. You can use your intuition to know if that’s true, or you can leverage demand forecasting. Forecasting helps you predict future sales in your retail store using data to make informed decisions about your inventory, and it can help you avoid overstocking seasonal trends.
Improve Marketing and Promotion
Something in your store needs to move? Try leveraging targeted marketing strategies online or in-store to promote products with lower STR. Do some digging on your target audience, and use the language and visuals that will compel shoppers to visit your store.
Enhance In-Store Experience
Shopping, especially in-store, is a visual experience. Work on optimizing your product displays to attract customer attention. After all, folks probably can’t see a t-shirt tucked into the bottom corner of a shelf.
Additionally, you can train your staff to promote the slower-moving items. Their recommendations will likely carry sway, thereby improving STR.
Leverage Data Analytics
What’s the easiest way to increase STR? It might involve leveraging a retail POS or inventory management software that provides real-time sales and inventory data.
KORONA POS offers detailed sales reports, including daily, weekly, and monthly sales data, so that retailers can understand which products are selling and which are lagging. We also offer customer behavior insights so that you can understand who’s buying what and when.
By utilizing KORONA POS’s data analytics capabilities, retailers can gain valuable insights into their inventory performance, make data-driven decisions, and implement strategies that improve STR and overall retail success.
Discover Advanced Analytics and Custom Reports
Speak with a product specialist and learn how KORONA POS can power your business needs.
Final Thoughts
Calculating and understanding your sell-through rate (STR) is essential for businesses hoping to optimize their inventory management processes. After all, an STR helps you gauge how quickly your products are moving off the shelves and make decisions about pricing, stock levels, and promotions.
While you can always track STR monthly using our calculator tool (or your own), leveraging tools like KORONA POS can make analyzing data and optimizing inventory strategies easy and automatic. Once you implement the right approach, you can improve your STR, prevent overstocking, increase cash flow, and make your customers happy.
And that’s what a successful retail business is all about, right?
