Key Performance Indicators (KPIs) are the metrics used to measure the performance of a business. Similarly, ecommerce metrics are the KPIs that can help online businesses evaluate their performance, set benchmarks, and take corrective measures to steer the business in the right direction.

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In this ecommerce metric refresher, you will learn what is sell-through rate, how to calculate sell-through rate, why should businesses calculate sell-through rate, benefits of increasing sell-through rate, and the strategies to increase sell-through rate.

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What is sell-through rate?

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Sell-through rate is an ecommerce metric which measures the amount of inventory that is sold within a given period, relative to the amount of inventory received within the same period. It is represented as a percentage.

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The following illustration shows the sell-through rate formula:

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Let's see how to calculate sell-through rate with an example,

1. Let's assume you received 100 t-shirts for the month of April
2. Out of the 100 t-shirts, you managed to sell 20 t-shirts in the month of April
3. Therefore, your sell-through rate for the month of April is 20%

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Why should businesses calculate the sell-through rate?

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Inventory is one of the biggest costs for any retailer and making sure your inventory is translating into sales is essential. Businesses need to monitor their sell-through rate to manage their inventory supply and demand effectively. Some of the major reasons for businesses to calculate the sell-through rate are:
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• To make pricing decisions — by analysing the selling trends of different products based on history, seasonality and popularity.
• To avoid the risk of inventory becoming obsolete — by analysing the speed of inventory movement; a high sell-through rate indicates that your merchandise is selling fast and vice versa. Early identification of an inventory with low sell-through can help you prevent it from turning into dead inventory.
• To plan production and supply — by identifying exponential surges and dips in sales through a comprehensive study of historic trends. This helps you accurately forecast demand and improve cash flow. Seasonality has a major impact on fashion — For example, winter coats have a low sell-through during the summer months and retailers shrink their inventory size accordingly.

Benefits of increasing sell-through rate

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1. Generate more revenue

As the sell-through rate indicates the percentage of inventory sold within a given period, a higher sell-through rate means more revenue for your business.
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2. Identification of high-performing products

If you achieve a higher sell-through rate, it would be because of certain high performing products from your overall product catalog. You can analyse each product's performance and create a good mix of high selling products destined for maximum revenue.
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3. Improved inventory efficiency

Inventory efficiency is a metric which determines how effectively you use your inventory to balance customer demands and warehouse overheads. In simple words — it's about having the right products, in the right quantities, and at the right time as cost-effectively as possible. A higher sell-through means higher inventory efficiency.
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4. Lower inventory holding period

Inventory holding period is a metric which shows the average time that a business holds inventory for. Whether you have your store products in your own warehouse or a fulfilment centre, higher holding period means increased cost of operations. An increase in sell-through rate would lower the average inventory holding period for a business.

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How to increase sell-through rate?

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There are various ways to help improve your sell-through rate, but it is essentially done in one of the two ways:

• Selling products to your customers faster
• Accurately forecasting demand

Strategies to increase sell-through rate

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Using powerful merchandising techniques

One of the most effective ways to increase your sell-through rate is to use powerful merchandising techniques like kitting and bundling to combine products with a low sell-through with products with a high sell-through. This reduces the risk of your slow-moving products becoming obsolete.

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Include upselling and cross-selling in your sales strategy

Another innovative way to clear out slow-selling products is to upsell and cross-sell your products by providing carefully curated product recommendations.

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Offer incentives to purchase

You can foster your customer's tendency to purchase your products by offering them various incentives to make a purchase. These could be basic such as free shipping and discounts, or they could be part of a larger retention scheme such as loyalty programs and coupons.

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Make data-driven business decisions

A comprehensive study of historic trends and patterns can help you accurately forecast demand. This helps you plan your production and inventory supply based on the demand and achieve a maximum sell-through rate.

For example, a merchant selling winter coats should consider factors such as how many coats sell every winter; are the sales increasing or declining every consequent year, and so on. After all this analysis, the merchant will finally decide how much inventory he wants to hold.

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Accurately sync inventory across channels

When you're selling on multiple sales channels, you need to ensure you sync your inventory continuously. This means any reduction or addition in inventory is reflected across all channels. Frequently, merchants frequently lose out on sales because their inventory wasn't updated on time.

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Go multichannel

Adopting a multichannel selling strategy can also assist your online store achieve a high sell-through rate. Try to list your products on multiple marketplaces and be present everywhere your customers could be. For example, a footwear retailer with a high sell-through rate would be present on multiple channels like Amazon, Flipkart, Myntra and Ajio.

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Bottom line

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Now that you know how to calculate the sell-through rate and strategies to improve it, you can make informed decisions to maintain the perfect balance between sales and inventory. Happy selling!

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