Using Sell-Thru for decision making

Sell-Thru is a key performance indicator for vendors and retailers alike.  Sell-Thru allows one to understand the velocity with which inventory is being consumed as it relates to sales.  Because sell-thru is a leading indicator, it is also very useful for predictive analysis.

When calculating sell-thru, careful consideration should be given to how the formula is constructed.  As with any business metric, there is more than one possible answer, but only one is correct in terms of meeting the business user's needs.

So ask yourself: what is the difference between calculating sell-thru using all available weeks of sales and inventory data as opposed to using the most recent 4 weeks of data?  Both methods are valid, although they may produce very different results.  The first method will tend to flatten out fluctuations due to promotions.  This is useful if the item is on replenishment and operates within established min/max guidelines.  The second method of calculating sell-thru, using the most recent 4 weeks of data, tends to provide a rolling snapshot of performance.  This is very useful if an item is  highly promoted and one wants to understand the impact of lift within a given promotional window.

Both methods are correct, but one will be more useful than the other to business decision makers at your organization.  Here are three best practices to make sure your team arrives at the most useful method:
1)  Have simple design sessions with business users to write out on a whiteboard all calculations.
2)  Discuss if the calculation supports the intended business decision.
3)  Adjust the formula accordingly.
4)  Identify low, middle, and upper performance conditions for each metric so exception dashboards can be created.
5)  Document your work in a place all team members can access so there is no confusion on how the calculation is performed, or how the performance conditions are aligned.

Comments

[shanny]

I have a question:

what is a good sell-thru rate in retail apparel and asseccories? If i cacluate that the blue shirt has a sell-thru rate of 11% is that good? I thought that the closer the sell-thru % is to zero the better. Is that correct? or is it the higher the number the faster it is selling

[accelerated]

As a merchant the goal is always to have as high a sell-thru as possible. Any inventory that is not sold thru is at risk for markdown or return depending on the vendors contract with the retailer.