Calculating the Sell through Percentage
This KPI is represented as a percentage, comparing the amount of inventory a retailer receives from a supplier against what is sold to the consumer, in a given period of time.
How is it Calculated
Sell-through percentage is obtained by dividing the number of units sold by the number of units that was received.
Sell through percentage = Units sold / Units Received
The higher the number gets, the better it is for the organization. Higher number may also signify more sales.
Example:
Let us consider Cotton shirts for this scenario. They are all time favourites and sell a lot during summer season. Let’s say we initially had 100 Cotton shirts and at the end of the first week we sold 15, which is a 15% sell through. The second week we started with 85 and sold 10 which is a 12% sell through. At the end of the first month we sold 40 which is a 40% sell through and now we have 60 left. 40% is the sell through for the month.
However, if something is not selling at 10% per week, perhaps a markdown is needed or conversely if it is selling 25% per week, then maybe we should get a re-order assuming it is not seasonal.
Owner of this KPI
This is jointly owned by Merchandisers and the Sales team. While the merchandisers are responsible for ensuring sufficient stocks are in place, the sales team ensures it gets sold off before the ageing period starts or the season gets over.
Impact of this KPI
- It helps in deciding the stock level for seasonal merchandise, as the focus remains on how to clear the stocks of seasonal merchandise by the end of the season.
- It gives a better control for deciding on accurate stocks and forecasting sales.
- It helps to decide on the replenishment timelines and reorder levels.
- This KPI gives information to decide on whether expansion plans are feasible or not.
The above graph depicts the cost per sale vs sell through rate of four different products. It can be observed that increased sell through percentage reduces the cost incurred per sale, whereas less sell through would add to the costs.
How to improve this KPI
Enhancing Sales
- Analyse and understand the conversion ratio of the number of times products added to the cart, to actually being purchased.
- Analyse and understand the conversion ratio of the number of times products added to the cart, to actually being purchased.
- Ensure accuracy of the product wise actual sales information.
- Reduce the time taken to update the stocks and update on website.
Merchandising
- Process the damaged and returned goods and update faster.
- Identify the top products as per their sales pattern, view the daily performance and plan the replenishment.
We understood the importance of the sell through percentage KPI and how we could make use of it to take an informed decision in maintaining the balance between sales and inventory.
