How To Calculate Sell-Through Rate (+ 6 Tips To Increase Yours)

Does inventory reordering sometimes feel like a guessing game? You keep ordering products so that you don’t run out… but other products sit on your shelves unsold, and now inventory storage is becoming a problem. 

Does this sound familiar? 

Calculating your sell-through rate is the key to better managing your inventory. This figure tells you the percentage of inventory sold during a specific time measured against the amount of stock you received. Knowing this number will help with reorder points, inventory management, and more.

In this blog, we’ll tell you how to calculate your sell-through rate, what it means to have a low or high rate, and share tips for boosting your sell-through rate. As an added bonus, we’ll even explain how a point of sale solution can make your life easier.

What Is Sell-Through Rate

Your sell-through rate (STR) will identify the percentage of your inventory that sold during a specific period of time. It’s measured against the amount of stock you received during that same period.

Sell-through rate =  (Units sold / Stock on hand) x 100

To calculate the sell-through rate for a specific period, plug the numbers for that period into the formula above. 

For example, let’s say a grocery store receives 200 boxes of cereal. During the month, it sells 150 boxes. The sell-through rate for this cereal is 75%.

Sell-through rates vary by industry, but a good benchmark is at or above 80%. As you measure KPIs, don’t confuse STR with inventory turnover. STR measures how much inventor*y you sell over a specific period of time, while inventory turnover measures how often you sell and replace inventory during that same time.

Use this formula to calculate inventory turnover:

(Cost of goods sold / average inventory) x 100 = % inventory turnover

Use this formula to calculate average inventory:

(Beginning inventory + ending inventory) / 2 = average inventory

What Does Your Sell-Through Rate Mean?

What’s the importance of calculating STR? 

Your sell-through rate is a key performance indicator (KPI) that indicates the strength of your shop’s inventory management and profitability. A high rate shows you can accurately predict consumer demand and you have a good handle on what’s in your inventory. 

A low sell-through rate means you ordered too much inventory or offered the wrong product to your customers. This happens when you don’t have the data you need or interpret data inaccurately, resulting in a poor demand forecast and items sitting on shelves.

Factors that influence the sell-through rate include seasonality, pricing, trends, and wavering demand.

Related read: 11 Key Performance Indicators Grocery Stores Should Track 

Tips To Increase Your Sell-Through Rate

If you’ve calculated your sell-through rate and you’ve found that it has room for improvement, here are six tips to help you raise that percentage.

1. Optimize Pricing Strategies

The first tip is to optimize your pricing strategies. Here are some techniques you can use to kick off these efforts: 

• Implement dynamic pricing based on demand and competition. Your prices don’t always have to stay the same. Take a look at what your competitors are doing and try to beat it. This is especially helpful during holiday promotions. 
• Use psychological pricing techniques. For example, charm pricing involves setting prices that end in the number nine, leveraging the “left-digit bias.” Research shows this causes consumers to focus more on the left-most digit of a price, leading to a perception of a better deal. Similar to charm pricing, odd-even pricing leverages the belief that buyers are more sensitive to certain ending digits. Odd prices end in odd numbers, whereas even prices end in even numbers or tenths. 
• Offer tiered pricing for bulk purchases. If you sell bulk items, offer a discount for buying larger quantities. Show prices for small, medium, and large quantities to illustrate savings.

When your pricing is optimum for your market and positioning, you’ll have an easier time selling through your inventory.

2. Discount, Bundle, or Offer Promotions

You might also explore promotions and discounts. Here are some tricks to test out: 

• Create limited-time offers to create urgency. This is an easy way to sell a larger amount of items. 
• Bundle complementary products for added value. If you’re dealing with deadstock or overstock, bundle these items with other quick-selling items to get them off your shelf. 
• Implement loyalty programs to encourage repeat purchases. Rewarding people for shopping with you incentivizes them to come back. A POS system can help you keep track of your most loyal customers, and you can further reward them with VIP events. 

Bundles and discounts are excellent ways to move inventory that has been languishing on your shelves longer than it should.

3. Improve Product Presentation and Merchandising

Aesthetics aren’t everything… but they are something! Product presentation can help boost your sell-through rates.

• Use eye-catching displays and signage. Bland signage isn’t appealing, but you also don’t want to overdo it. Make sure your signage is easy to read both from a distance and up close, and don’t use contrasting colors that are hard to read. 
• Implement cross-merchandising techniques. Displaying related items next to each other is one way to boost sales on a slow-moving item. For example, if you run a small hardware store, you could place painting accessories near paint cans. If you run a clothing store, you could place hosiery next to dresses or shoes. Seeing these complementary items together could help customers realize they need both.
• Regularly rotate product placement to maintain customer interest. Moving displays gives customers the illusion of new products. Even if you’ve had those products all along, maybe they never made it to the back of your store. Items placed in the front of your store will be greeted with fresh eyes.

Engaging in strong merchandising and product placement efforts can help move your inventory more quickly.

4. Enhance Inventory Management Practices

Strong inventory management is critical for any business. What exactly does this mean? Let’s take a look: 

• Implement just-in-time (JIT) inventory practices. This tactic involves ordering and receiving stock only as it’s needed to meet immediate demand. JIT ensures you don’t have too much inventory at once. 
• Use the FIFO (First in, First out) method for perishables. For example, if you’re a small grocer, put milk with an upcoming expiration date at the front and newer stock in the back. This will help reduce spoilage. 
• Conduct regular inventory audits to maintain accuracy. What you have on paper may not be what’s physically in stock. Conducting regular audits, like cycle counts, will help maintain inventory accuracy and happy customers. A POS system can help alleviate inventory burdens by tracking data as items are sold and received. 

When you have robust inventory management processes in place, you’ll have a better handle on what’s in stock, giving you more granular knowledge of what products are moving and which ones aren’t, helping you make the best decisions for your store in terms of restocking, promotions, and more.

5. Forecast, Create Replenishment Strategies and Seasonality Adjustments

You can’t tell the future, but with the right forecasting processes in place, you can get close. Let’s examine some best practices: 

• Use historical data to predict future demand. You may assume that you sell more T-shirts in the summer, but does the data back it up? Take a look through past sales to find what products were in demand in prior years to help with reordering and forecasting this year. A modern POS system will include reports with all this information and can help you accurately predict demand.
• Implement automated reorder points for key items. Examine inventory and sales reports to determine the fast-selling items and use your POS system to implement a reorder threshold. This way, you always have safety stock of your best-selling products. 

Accurate forecasting can help prevent over-ordering and minimize your need for safety stock, helping you right-size your inventory. 

6. Utilize Data Analytics and Inventory Management Tools

The right processes are one thing, but if you really want to take your processes to the next level, you need the right tools. 

• Demand forecasting
• Automated reorder thresholds
• Daily reports with inventory turnover, customer purchase patterns, and more
• Customer loyalty programs
• 24/7 customer support
• Smoother transactions
• Employee management
• Loss prevention
• Integrated payment processing

Using these tactics with a state-of-the-art POS system can improve your sell-through rate, streamline business processes, optimize sales, and grow your retail business.

Related read: Gross Profit Margin vs. Net Profit Margin: Which Is More Important? 

Improve Your Sell-Through Rate With Inventory Management and POS Nation

A sell-through rate of 80% higher means your store is profitable and efficiently selling products. Any lower, and you may need to make some adjustments. Knowing your STR will help you realize these discrepancies and make better inventory decisions. 

Improve your STR by creating and bundling promotions, offering customer loyalty incentives, optimizing pricing, and analyzing all the sales data in a POS system that brings everything together in one place. POS Nation works with thousands of retailers nationwide to improve STR and business growth. 

Schedule a demo today to see how POS Nation can boost your sell-through rate.