There’s more to selling online than just putting items up for sale and waiting for the orders to start rolling in.
In order to be successful, ecommerce businesses need to understand the concepts of sell-in and sell-through and how to apply them correctly to their inventory.
In this post, we’ll explain the differences between these two terms and outline how you can use them to improve your sales numbers and bottom line.
What is sell-in?
If you are a retailer, sell-in refers to the number of units of a product a manufacturer is selling to the retailer.
If you are the manufacturer, sell-in refers to the number of sales from the manufacturer to your distributors.
What is sell-through?
For a retailer, sell-through refers to the number of units of a product that have been sold to customers.
For a manufacturer, sell-through refers to sales from distributors to retailers.
For example, if you are the publisher of the latest teen craze vampire romance novel, you are the manufacturer. Your sell-through is the number of sales from your book distributor to retailers such as Barnes & Noble, Amazon, small independent bookstores, and even online stores. However, if you are Barnes & Noble, your sell-through is how many copies of the same book are bought from your store in-person or online.
Is sell-through the same as inventory turnover?
Most people in business understand the concept of inventory turnover. It’s a measure of how quickly a company sells its stock of goods. The higher the turnover, the better. After all, it means that the company is selling its products and making money.
But what about sell-through? Is that the same as inventory turnover?
The answer is no. Sell-through is a measure of how much of a product is sold by a company over a period of time. It’s typically expressed as a percentage. So, if a company sells 100 bracelets in a month and there are 200 bracelets in inventory at the end of the month, the sell-through rate is 50%.
Inventory turnover, on the other hand, is a measure of how quickly inventory is moving. It’s typically expressed as the number of times stock is sold in a period of time. So, if a company sells 100 bracelets in a month and there are 200 bracelets in inventory at the end of the month, the inventory turnover rate is 2.
The two measures are related, but they’re not the same. Sell-through tells you how much of a product is being sold. Inventory turnover tells you how quickly inventory is moving.
Why is this distinction important?
Because if you’re trying to manage inventory, you need to know both how much it is selling and how quickly it’s selling. Sell-through will tell you if you need to buy more of a product. Inventory turnover will tell you if you need to sell more of a product.
Both measures are important, but they’re not the same. Make sure you know the difference.
What is sell-out?
If you are a manufacturer, sell-out refers to sales from retailers to the end consumers. For example, a sell-out occurs when a customer purchases your company’s vampire romance novel from Barnes & Noble.
Why is knowing these differences important? A business’s primary goal is to sell the inventory they buy or manufacture at a profit.
Do you know how efficiently inventory moves through your company’s pipeline? It may surprise you that many businesses don’t. And that can cost you. Often, companies focus exclusively on increasing sales and measuring the number of products sold, but they ignore their average sell-through rate.
Why does this matter? Ignoring your company’s sell-through rate costs your business money in terms of higher carrying costs. A high sell-through rate means your business is ordering the right amount of inventory to meet your customers’ demand.
But a low sell-through rate means you’re ordering and carrying too much inventory. Or it may mean that your pricing is depressing the demand for your products. Either way, your ecommerce business is facing challenges with your demand planning, inventory forecasting, purchasing, or pricing strategy.
The first step in optimizing your demand planning is understanding what you’re dealing with.
How to calculate the sell-through rate
Your sell-through rate is a number that represents the percentage of inventory that’s sold over a period of time, and it’s a key indicator of your business’s health.
Sell-through calculations should typically be done monthly. To calculate your sell-through rate, use these two simple formulas:
- Sell-Through Rate = (Units Sold/ Units Received)
- Or, Sell Through Rate = (Units Sold / (Units on Hand + Units Sold)
Let’s go back to our publisher example. Let’s say our publishing business ordered 20,000 copies of our new vampire romance novel in the month of November, and we sold 16,654 copies, leaving 3346 copies still in the warehouse.
Using Formula 1, we would divide our units sold (16,654) by our units received (20,000), making our sell-through rate 83%.
- 16,654 ÷ 20,000 = .83
- .83 = 83%
Using Formula 2, we would divide our units sold (16,654) by our units on hand (3346) plus units sold (16,654), making our sell-through rate 83%.
- 16,654 ÷ (3346 + 16,654) = .83
- 16,654 ÷ (20,0000) = .83
- .83 = 83%
What is a good sell-through rate?
There is no magic number when it comes to a good sell-through rate, as it will vary depending on the industry and the type of product you are selling.
In addition, the sell-through rate will generally increase over time. According to Accelerated Analytics, at eight weeks, the average apparel sell-through is 24.3%, and it tops out at 68.7% over the course of a year.
The DIY category has a whopping 55.4% sell-through rate on average at eight weeks and tops out at almost 90% over one year.
As a general rule of thumb, a good sell-through rate is anything above 70% over the course of a year.
If your sell-through rate is below 70%, it could be an indication that there is something wrong with your product or that your pricing is off. It could also mean that your business deals in products, such as cosmetics, that typically have a lower sell-through rate.
It is essential to know what the average is for your specific company and industry so you can keep an eye on your sell-through rate and make changes if it starts to dip below your target percentage.
How to increase your sell-through rate
Having a high sell-through rate means your company quickly sells inventory as it is received. To keep your profits high, your business should be buying stock to meet your customers’ demand without the need to discount your products to sell off excess inventory.
If your sell-through rate is low and you have excess inventory sitting in your warehouse, you’ll lose money on warehousing, shrinkage (theft), and potentially dead stock.
There are a few different ways to increase your sell-through rate. Below, we’ll explore some of the most effective methods.
Lower your average inventory
If your sell-through rate is low, your inventory forecasting may be off. In the jewelry example above, if a company sells 100 bracelets in a month and there are 200 bracelets in inventory at the end of the month, the sell-through rate is 50%.
By decreasing the inventory of the bracelets to 140 per month, your business can increase its sell-through rate to 71%. This lowers the carrying costs of your inventory while still allowing your business to meet fluctuating customer demand.
Optimize your product listings
One of the first things you can do to increase your sell-through rate is to optimize your product listings. This means ensuring that your titles and descriptions are accurate and keyword-rich and that your photos are high-quality and visually appealing.
Run promotions and discounts
Another great way to increase your sell-through rate is to run promotions and discounts. This can be anything from a percentage-off sale to free shipping or a buy one, get one deal. Whatever you choose, make sure it’s something that will entice customers to buy. You can increase sales by lowering your price or running a price promotion. While your per-unit profit will decrease, you’ll save on carrying costs, shrink, and dead stock.
Offer more payment options
Making it easy for customers to pay is another vital way to increase your sell-through rate. Offering multiple payment options, such as credit cards, PayPal, and even Bitcoin, can make a big difference.
Provide excellent customer service
Finally, providing excellent customer service is crucial for increasing your sell-through rate. This means being responsive to customer inquiries, offering hassle-free returns, and providing a positive overall experience.
By following these tips, you can increase your sell-through rate and improve your ecommerce business.
Understanding the differences between sell-in, sell-through, and sell-out rates are essential for all ecommerce businesses. By knowing how to calculate your business’s sell-through rate, you can make informed decisions about what products to stock and when to reorder inventory.
A high sell-through rate is a good indicator that you are stocking items that people want to buy, so make sure you use this metric to help increase sales for your store.
However, the next step after understanding how your products are doing is to maximize how efficiently you move those products through and out of your warehouse. A great way to do this is by using inventory management software, like SkuVault, to pick, pack, and ship your products faster to help grow your bottom line.