Owning a business can be a lot of work because you have to do a lot of things to ensure the well-being of the company and generating sales. The supply-chain needs to be effective in order to have everything working accordingly. But how do you measure it?
There is a metric that allows you to observe hot efficient the supply-chain is, and how much inventory you’ve sold in a month vs the inventory shipped from the manufacturer. It is called the sell-through rate, and if you want to find out more about it, here is some helpful information.
What is the Sell-Through Rate?
As already presented in the article’s beginning, the sell-through rate basically calculates the amount of sold inventory vs the amount of inventory shipped from the manufacturer. In addition, it allows you to observe how efficient your supply-chain is. The metric is very essential for any physical stores, especially considering how much e-commerce platforms such as Amazon, eBay and Shopify have risen.
It’s usual to have a goal to reach a high level of sell-through rate. Any of the products that your store’s shelves have is costing money and could be used for more popular products. If the sell-through rate has a very low level, you will have to dig into the problem at the problem deeper. Considering it’s the leading indicator, the rate won’t tell you what’s wrong. It only tells you that something is wrong, leaving you to wonder what it could be.
So, to find out about that, you will have to segment your sell-through rate analysis by product and check which are the products that are selling well. You will also find out which are the products that are selling poorly. Using this information, you will be able to inform your inventory process, thus reducing the risk of carrying a slow performing product. Additionally, take care when it comes to seasonal trends, as they may impact product sales.
What is the Formula?
The formula that lets you estimate the sell-through rate looks like this:
(Total Inventory at the beginning of the month – Number of products sold in a month / Total Inventory at the beginning of the month) x 100
How Does it Help You?
By calculating the sell-through rate of the inventory, you will be able to make informed buying decisions to add products on your shelves accordingly. By doing this, you avoid losing opportunities when it comes to selling them.
Moreover, it can indicate a poor product performance, and you can get rid of the products that are not performing too well and use the space for better-performing products. Consequently, your business will generate more sales.
So, there you have it, some basic information about the sell-through rate that could come in handy at any time when you’re a business owner. By measuring how well the products are selling, you will be able to see what the clients like, and what they don’t. Therefore, by getting rid of the poor performing products and selling the good performing ones, you will have a successful company, as you will generate income.