How to Improve Your Sell-Through Rate
Retailers lose a lot of money every year at the hands of improper demand forecasting. If a business isn’t accurately predicting how much product they need to purchase from a manufacturer, this leads to either a surplus of goods or a shortage—and both equate to lost cash. That’s why it’s so critical for business owners to understand just how much product to order, when and what to reorder, and how long the goods will take to sell. How do you do this? Through something called sell-through rate (STR). According to Shopify, a retailer’s sell-through rate is the amount of inventory sold within a given time period, calculated as a percentage of the amount of inventory received from the manufacturer during the same time span. In short, it’s the percentage of product sold to customers. The optimal STR sits at about 75-80 percent. In terms of benefits, STRs help retailers understand inventory turnover and more accurately assess storage and discounting costs. How can business owners improve their sell-through rate? Let’s find out!
If businesses have too much inventory, they could potentially face issue selling products at full price; holding too little inventory means you can’t meet customer needs and could lose business. That’s why keeping tabs on your inventory and STRs is so critical to financial success. STRs can be calculated based on the type of product, brand, category, etc. The higher the STR, the higher you profit margins. The lower the STR, the lower your ROI. For businesses sitting on the lower end of the STR spectrum, consider the following ways to improve it:
Discount it. Likely the easiest and most obvious strategy to move inventory, discounting is the way a lot of businesses tackle low STRs. This could come in the form of a sale on clothing or shoes (if you’re an apparel retailer), or specials on food and drink (if you’re a restaurant owner). But be mindful that discounting items lowers your profit margins, so this strategy should be used sparingly—and only when it makes sense.
Buy less. A low STR could very well mean you just ordered too much of something. It’s best to fully understand your customer and their buying habits before you place any wholesale order. To do this, be sure to keeps tabs on your sales reports to make the most informed inventory purchases; this will enable you to order just the right amount of product to meet customer demand.
Consider seasonality. Whether you sell clothing, food, or liquor, seasonality is a factor in nearly every industry. A summer shandy is going to sell more in the summer months than it would in mid-January, so you wouldn’t order a stockpile of it in the late fall. Business owners will want to sell their seasonal items at full price during the months leading up to the season they’re in high demand and begin discounting once the new season is closer. Discounting helps clear out room for the next hot item to hit shelves.
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