If you want to know the number of products sold in a month compared to the total inventory at the beginning of the month, you must measure the sell-through rate
Tracking and optimizing sales will allow you to move products faster, reduce excess stock, and ultimately have better cash flow in your business.
Let’s break down all the key things you need to know about your sell-through rate and how to improve it.
What is the direct sales rate?
The sell-through rate is one that measures the amount of inventory you have sold in a month compared to the amount of inventory the manufacturer has sent you. This is one of the sales indicators that allows you to monitor the efficiency of your supply chain.
It’s an especially important metric for brick-and-mortar stores given the rise of e-commerce platforms like Ebay, Amazon, and Shopify.
Importance of measuring the direct sales rate
The objective is to know what your sales index is. Any product you have on the shelf is costing you money, and could be used for more popular products. If your sales rate is too low, you will have to dig deeper into the problem.
Strictly speaking, sales percentage estimates how quickly a company can sell its inventory, converting it into revenue. Essentially, it is one of the most important key performance indicators (KPI) in inventory management. In particular, it is commonly used in the retail sector.
How is the sell-through rate calculated?
Companies calculate sales rate by dividing the number of units sold by the number of units received. The result is then multiplied by 100.
Direct sales rate = (Number of units sold / Number of units received) x 100
Let’s do a sales calculation to understand it.
Let’s say you are a coffee roasting company and you purchase 300 pounds of unroasted green coffee beans on January 1st. Throughout the month of January they roast and package it, selling 180 pounds. On January 31, they have 120 pounds of roasted and packaged coffee left.
Direct sales rate = (180 / 300) x 100
Rate = 0.6 x 100
Sales percentage = 60%.
The roaster sold 60% of the inventory it received during the month of January.
The sales rate varies by industry and organization, but the general rule is that a sell-through rate of over 80% is ideal.
How to increase your direct sales rate
A high sales rate means that the company has quickly sold the inventory it has received. Doing so without discounting merchandise is the best way to keep profits high.
On the other hand, a low sales rate indicates that products are not moving quickly. This ties up money in warehouses, risks inventory becoming shrinkage or obsolete dead stock, and often requires discounting. All of this brings fewer benefits.
Here’s how to increase your sales rate:
- Reduce your average inventory . Your demand forecast could be wrong. There may simply not be the demand you think there is. Adapt to it and make fewer orders. That discount on bulk shipping may not be helping. Tighten the reins of your inventory operation and manage it as the data shows it currently is. Not how you expect it to be.
- Discount finished products. In a way, you can control the demand for your product. By lowering the price, each potential buyer’s calculus changes. That can mean a conversion. Of course, the profit is reduced compared to the maximum profit margin. But it’s better than having dead stock.
- The low sell-through rate is just a matter of adjusting supply or demand . In that sense, it’s pretty simple.
View your direct sales rate on a dashboard
Using a dashboard you can segment your sales rate analysis by product to see which products are selling well and which products are selling poorly. Use it to optimize your inventory process and reduce the risk of having slow-moving products.