Retail Metrics: Key Performance Indicators (KPI’s) – Sell Through Percentage
By Scott Kreisberg
CEO, One Step Retail Solutions
Key Performance Indicators are your guide to knowing what’s happening in your store and are the road maps that direct you to increased sales and store expansion. There are 5 of these indicators that will tell you just what you need to know to keep the show on the road – Days of Supply, Turn, Stock to Sales Ratio, Sell Through Percentage and Gross Margin Return on Investment. I’ve gone over 3 of these to date; Days of Supply, Turn and Stock to Sales Ratio in previous articles (read articles) and explained how you can use each one of these tools in your store. As can be seen, each of these things, while separate in their own right, do play an integral part in the merchandise decision process.
Sell Through Percentage
Which now brings us to, Sell Through Percentage. What is that anyway? Let’s do some math for a second. Sell Through Percentage is calculated like this: Average Units Sold ÷ Average Units of Inventory Available. Now, that’s how you figure it out with a math equation. Let’s break it down even simpler because the simpler something is, the better… it is the percentage of stock you had available for sale which was actually sold. This tells you the percentage of stock as it sells out, hence, Sell Through Percentage. It’s the exact inverse of Stock to Sales Ratio. (Average Units of Inventory Available ÷ Units Sold.) (Stock to Sales Ratio is key to knowing whether or not you are overstocked in certain items.) Seems simple enough, but let’s explore this further because I really want to make sure this explanation is helpful for you… How does Sell Through Percentage play a part with Days of Supply, Turn and Stock to Sales Ratio? As I’ve used the correlation of an airplane pilot and retail store management, store management needs to use all of the KPI’s to make decision just as the pilot using several gauges to fly the plane. Using just one or two reports isn’t going to take you to a great revenue generating store. You want to utilize the key reports from your POS. So, Sell Through Percentage comes next in after Stock to Sales Ratio.
Ask yourself, do you really need to know what percentage of inventory you can sell? Yes, absolutely this is vitally important. When it comes to Sell Through Percentage, it is especially important for seasonal merchandise. Since the goal is to be out of stock of seasonal merchandise by the end of the season, knowing how much to have left, along with validated statistics at hand, is more profitable than trying to guess at how much to buy for the coming year. Who wants to have to guess at things? I know I don’t and if there’s already a way to figure it out, then by all means use it.
Plan out the percentages to be sold by month using your year-to-date sales of seasonal merchandise. This helps ensure that you are out of stock by the end of the season. Keep in mind this is a percentage and you may not actually sell out all items, but using this calculation can definitely help get you as close to sold out as possible, which is what I want to happen in your store. This also gives you better control for accurate stock and sales management. Who wouldn’t want that?!
And in closing… with a better understanding of the KPI’s mentioned in this article, you will make your store more profitable. Utilize your POS system. It has all of the data you need to calculate, track and understand what’s happening in your store so you can make viable decisions. Grab the reports all together, see what they are telling you and base your decisions on the numbers. This will work every time.
The last article in this series will cover Gross Margin Return on Investment… everybody’s favorite! Until then, let’s stay profitable.