Sell In vs Sell Through

What Do Sell In and Sell Through Mean?

Sell In

This refers to the number of units a manufacturer or distributor sells to a retailer. It’s essentially the "order" that goes into the retailer's inventory.

Example: A smartphone maker ships 1,000 phones to a retail store. That shipment is the sell-in

Sell Through

This is the number of units the retailer sells to the final consumer. It tells you how much of that inventory is moving off the shelves.

Sell-in shows the supply entering the retail channel, while sell-through indicates consumer demand. Relying solely on sell-in numbers can be misleading if the products don’t move as expected.

How can we measure our performance?

The sell-through rate measures the percentage of inventory sold over a given period compared to the number of units initially stocked (sell-in). It helps you understand how quickly your products are moving off the shelves.

Why It’s Important:

• Demand Insight: It reflects actual consumer demand rather than just retailer orders.
• Inventory Management: A high sell-through rate usually means less risk of overstocking.
• Financial Impact: Helps optimize cash flow by aligning inventory levels with sales, reducing holding costs.

Calculating Sell-Through Rate

Scenario:
A smartphone maker ships 500 units of phones (sell in) to a retailer in a month. By the end of the month, 400 units are sold to the end customer (sell through)

This means 80% of the inventory moved off the shelf in that month.

Why Monitor Sell Through Rate?

Key Insights

• Demand Forecasting:
  A declining sell-through rate might indicate a decrease in consumer demand, prompting you to adjust future orders.
• Inventory Efficiency:
  If sell-through rates are too low, your cash is stuck in unsold stock, leading to increased storage and potential markdowns/scrap
• Promotional Effectiveness:
  Analyze whether marketing campaigns or discounts are effective in boosting sales. A sudden improvement in the sell-through rate post-promotion can validate your strategies.

Benchmarking

• Industry Standards:
  Different industries have different benchmarks. For example, fast-moving consumer goods (FMCG) typically have higher sell-through rates compared to durable goods.
• Set Targets:
  Use historical data to set realistic targets. For example, if your average sell-through rate is 70%, aiming for an 80% improvement might be your next goal.

Common Challenges in Aligning Sell-In and Sell-Through

• Mismatch in Data Timing:
  Sell-in data is recorded when the product is shipped, while sell-through may lag as products sell over time.
• Data Inconsistency:
  Different systems or delays in data entry can result in inaccurate numbers.
• Over-Reliance on One Metric:
  Focusing only on sell-in can mask issues on the sales floor, while only looking at sell-through might ignore supply chain hiccups.
• Forecasting Errors:
  Misinterpreting the relationship between sell-in and sell-through can lead to over-ordering or under-ordering products.

Final Thoughts

The sell-through rate is a powerful KPI that provides clear insights into your inventory health and demand forecasting. By regularly calculating, tracking, and analyzing this metric, you can make informed decisions that lead to better inventory turnover, reduced costs, and improved customer satisfaction.

If you like to create your demand forecast using your sell-through and sell-in numbers, check out our next article here where we deep dive into inventory levels and sell-through rates

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