Sell-Through

The sell-through of a business is an expression of it’s ability to move inventory into the hands of paying customers.

It is usually a term used by trading companies as the nature of business is in the buying of products and selling them to end-users.

The sell-through rate is commonly expressed as a statistic of how fast inventory can be sold within a month.

For example, if a total of 100 units of the same product is put on the display shelves in a retail outlet at the beginning of the month and 30 was sold by the end of the month, then the sell though rate would be 30/100 = 30%.

This data can play a crucial role in a company’s procurement planning and a retailer’s merchandising activities.

Sell through for vendors and suppliers

While most people might feel that a 100% sell-through would be the pinnacle of a business as they have sold-out all their products, it is usually not viewed with such regards for the company.

This is because a 100% sell-through means that a company is not building or importing enough products to make the most of high demand for their products.

By having 100% sell-through, it essentially indicates an inability to plan for appropriate levels of inventory to sell to consumers who want to buy them. This leads to loss of sales and opportunity costs.

On the other hand, a 0% sell through rate would reflect the inability of the company to judge the lack of demand for a product.

Either that, or there is ineffective marketing, and maybe even over-pricing the product.

Conversely, a 90% sell-through can mean a pricing strategy that under-prices the product.

The sell-through rate can also help a vendor estimate how many months of products it is holding in the warehouse.

For example, a 40% sell-through would represent an estimated 3-months worth of products if 120 units are left in the storage facility. And the company has to ensure that a new batch has to be shipped in within that time frame to avoid loss sales opportunities.

Sell through for retailers

Big box retailers and anchor tenants value their shelf space a lot. And a lot of their merchandising activities are centered around what products to display on which shelves.

If a product is deemed to have a less than desirable sell-through rate, then it can be perceived that the particular shelf space is not being used at it’s best potential.

This is because a low sell-through product would be taking up display space that can be freed up for another product that carries a better performance in terms of sell-through.

This can lead to the low sell-through product being relocated to other areas with less exposure or have their prices slashed in order to move units through the cashier.

With this in mind, the retailer might not order from the vendor again. Or use the low sell-through to negotiate for a lower price so as to retain their margin.

If the products are on consignment, a different approach can be taken to manage the low-selling product,

Sell through for investors

Investors of trading companies usually want to see a high sell through rate.

This is because for venture capitalists, a high sell-through signifies a strong proof of concept and a high demand.

This high demand can be easily be served from the funds that the investor would pump into the company to purchase more inventory.

Leading to a high probability that the company value would increase quickly after investment funds has been disbursed.

This is one of the ideal scenarios any investor of a company would want to see.

If the funding has been done through venture debt, then the lender/investor would be more assured of repayment as more sales can be expected to be generated, implying funds to meet repayment obligations on the loan.

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