What does sell through mean?
Sell through refers to goods that are being transported from one place to another. The sell through rate, then, measures the amount of inventory a company sells in relation to the amount they purchased from the manufacturer. In general, retailers use sell through rates to estimate how quickly they can sell specific products and convert their investment into cashflow. But more than that, understanding your sell through rate within a given period of time helps you recognize the efficiency of your inventory turnover (so you can avoid unnecessary warehousing costs).
What is the sell through rate?
The sell-through rate measures the amount of inventory a company sells in a month compared to the amount they purchased and got delivered from the manufacturer.
The sell-through rate metric is one of the most important for measuring the efficiency of a sales cycle. Retailers use sell-through rates to estimate how quickly they can sell specific products and convert their investment into cash flow.
Understanding the sell-through rate within a given period of time also helps you recognize your inventory turnover ratio and how effective your inventory management is, so you can avoid unnecessary warehouse storage costs.
How to calculate the sell through rate
Calculating sell through rate is done by dividing the number of units sold by the number of units received, and then multiplying that sum by 100. The sell through rate formula looks like: sell through rate = [number of units sold ÷ number of units received] x 100. Most retailers use one month as their time period when calculating their sales data; any products sitting on warehouse shelves after 180 days are considered ‘dusty inventory.’ These items typically go through a discounting period to make room for new products that can be sold at full markup and provide greater profit margins.
Calculating the sell through rate: an example
Let’s say your ecommerce company purchases 200 units of a specific jacket, and within one month, you’ve sold 100 units of this SKU. To calculate that jacket’s sell through rate, use: sell through rate = [number of units sold ÷ number of units received] x 100. In this case, that looks like: [100 ÷ 200] x 100 (or 0.5 x 100) — meaning your sell through percentage is 50%.