The sell-through rate, or STR, is a key metric for any retailer. It measures how quickly merchandise is selling and how efficiently stores are stocking and replenishing inventory.
In this blog post, we’ll explore the sell-through rate, how to calculate it, and the importance of having an accurate retail POS system to track it. We’ll also dig into what a reasonable sell-through rate is, what factors influence it, and provide some tips on improving your sell-through rate. Finally, we’ll discuss why understanding and optimizing your sell-through rate is critical to the success and growth of your business.
Table of contents
- Definition of sell-through rate
- How to calculate STR
- What’s a good sell-through rate
- How to improve the sell-through rate
- Retail POS & STRs
- STRs vs. inventory turnover
What Is Sell-Through Rate (STR): Definition & Importance
The sell-through rate (STR) is a key metric used to measure the performance of a retail business. It’s an essential indicator of how well any product or collection is selling compared to other products or supplies. A higher sell-through rate means a better opportunity for generating higher profits.
STR can be used as an easy way to compare different product lines and understand which products are most successful in sales. Additionally, it’s a great way to ensure inventory accuracy and track stock levels across multiple locations. Moreover, it enables businesses to plan better while optimizing their supply chain and investing in products with a high potential for customer success.
When it comes to retail stores or any outlet that sells items directly from its inventory, having an up-to-date retail POS system is absolutely necessary to track STR accurately and optimize it for maximum profits.
How to Calculate STR: Methodology & Examples
Calculating your sell-through rate requires a few simple steps. First, you need to determine the total number of items sold in a given period—this is the numerator. Then, divide that by the total amount of inventory, you started with at the beginning of that period—this is the denominator.
Here is the formula:
(Total Units Sold / Total Inventory Available) x 100 = Sell-Through Rate
To make it simpler, let’s take a look at an example:
Let’s say you have 100 items in stock, and 25 were sold. You can calculate your sell-through rate by dividing 25 (total units sold) by 100 (total inventory available). Then, multiply that result by 100 to convert the result into a percentage: (25 / 100) x 100 = 25%. This would be your sell-through rate for that period. It’s important to note that this metric should be combined with other measures, such as gross margin, to ensure those sales are positive for your business.
By regularly tracking and monitoring your sell-through rate over time, you can identify any areas of improvement and how best to leverage this data to maximize profits and drive sales opportunities. A reliable POS system can provide real-time visibility into stock levels and sales data, enabling retailers to quickly assess their current STR and make necessary adjustments to ensure maximum efficiency and profitability.
Ideal STRs: Benchmarking & Considerations
There are no hard and fast rules when it comes to benchmarking an ideal STR. Every business case is different, and you have to adjust accordingly. Generally speaking, an STR of over 50 percent indicates success, while anything below 20 percent suggests a need for improvement.
The STR can also be beneficial when used as a metric to compare different product lines. It will give you insight into which items are selling the fastest and which are the slowest sellers. This is especially useful when deciding what inventory to purchase or restock in the future – focusing on products with a higher STR than others.
One of the best ways to increase your sell-through rate is by leveraging retail POS systems into your operations. A reliable POS system can offer real-time insights into inventory performance, allowing you to make faster decisions and optimize operations for improved efficiency and results. Furthermore, the POS system can help you manage promotions and discounts more effectively, leading to better overall sell-through rates.
Strategies to Improve Sell-Through Rate: Tips & Techniques
You may wonder what actionable steps you can take to increase your STR and make smarter business decisions. Fortunately, there are plenty of tried and tested techniques that you can use to improve your STR and maximize the profitability of your business.
Lower inventory levels
One of the most effective ways of improving your STR is to maintain lower inventory levels. Keeping track of current consumer trends is crucial when restocking items, as overbuying could easily lead to stockpiles of unsold products, lowering your STR in the long run.
Running promotions is another way of increasing demand for certain items in your store. You can offer discounts or free shipping on items with a lower sell-through rate to entice shoppers. Additionally, you could organize customer loyalty programs that encourage repeat customers and reward them for their purchases.
It’s essential to monitor seasonality trends when predicting demand for specific products. For example, if you own a clothing store, you’ll want to stock up on winter coats at the beginning of the fall and then plan your promotions accordingly so that you don’t end up overwhelmed with inventory come springtime.
Ask your customers
The best way to get inside information about what customers are looking for is simply by asking them! You can conduct surveys or questionnaires online or in-store or have employees engage with customers directly so that you can get as much insight as possible into their buying habits. This will help you determine what items should be stocked to maximize your STR.
Role of Retail POS Systems in STR Optimization
A retail point of sale (POS) system is an invaluable tool for understanding and optimizing the sell-through rate. When integrated with the right POS system, businesses can effortlessly track sales data, customer behavior, and inventory in real-time. This gives companies powerful insights into their business performance, allowing them to make more informed decisions about pricing, promotions, marketing campaigns, and more.
Calculating KPIs and other metrics
Using a POS system also makes it easier to calculate the sell-through rate. The software can collect data from all sales channels and generate detailed reports that show metrics like units sold and units in inventory over time. This information can be used to calculate the STR for any given time period and compare it to other periods.
Understanding sales trends
Using a POS system also makes it easier to improve your sell-through rate by identifying trends in customer behaviors and helping you target the right audiences for your products. Additionally, a POS system’s ability to manage inventory in real-time enables businesses to quickly identify slow or obsolete items so they can adjust their strategies accordingly.
Plan ordering with predictive sales analysis
A POS system can also be used to identify trends in customer demand and adjust the product inventory accordingly. This allows the retailer to target specific items in high demand and ensure their stores are well-stocked with popular items. Furthermore, sales projections based on historical data can be used to predict future demand and ensure that business operations remain effective. Overall, a retail point of sale system provides invaluable insights into sales trends that help businesses understand how well they sell their products at any given time. It is essential to leverage this data to optimize your sell-through rate and maximize your profits.
STRs vs. Inventory Turnover
Another metric closely related to the sell-through rate is the inventory turnover ratio (ITR). Both of these metrics measure the efficiency of customers buying products and stores selling them. While STR provides information on total sales for total inventory within a particular period, inventory turnover, on the other hand, measures how many times a company’s inventory is sold and replaced over some time. It is calculated by dividing the cost of goods sold by the average inventory value for the same period. The inventory turnover ratio is a key indicator of a company’s operational efficiency and is used to assess how well the company is managing its inventory levels and cash flow.
Both metrics are important to track for a company’s inventory management. However, they serve different purposes. The STR measures how quickly inventory is being sold, while the inventory turnover measures how often inventory is being replaced. A high STR with a low inventory turnover indicates that the company is selling inventory quickly but may carry too much inventory.
In conclusion, the sell-through rate is an essential metric for any business, providing insight into the performance of the products in your store and helping you to make decisions on what to restock and how many products you need. It can also provide important insights into customer behavior, helping you make better decisions regarding stocking, pricing, and promotions.
To calculate and monitor your sell-through rate, it is crucial to have access to a reliable retail POS system, as this will help you accurately track your sales and ensure that you are making the most of the data available. With all this combined, businesses of any size can make informed decisions and plan for the future, helping to ensure success and growth.
FAQs: What Is Sell-Through Rate?
eCommerce is shopping that is done through websites or mobile apps. POS transactions are purchases made in person. Nonetheless, eCommerce now integrates with point of sale software so that all of your online sales are recorded and tracked in a central database.
To calculate the sell-through rate, divide the total units sold during a given period by the beginning inventory for that period and multiply by 100. The resulting percentage indicates how much of the stock was sold.
An example of a sell-through rate for a retailer is if a store begins the week with 100 units of a particular product and sells 80 of those units during that week, the sell-through rate for that product would be 80% (80 units sold / 100 units in inventory * 100%).