As The Yield Doctor, I often get asked, “What should our sell-through rate be? Should we target 70%, 80%, 90%?”
My answer is: you probably shouldn’t have a target sell-through rate at all.
You should absolutely monitor it. You should understand why it’s changing. And you may use it in your financial planning. But turning it into a target can lead you to make some very bad pricing decisions and some very bad inventory decisions.
For example, a higher sell-through rate is not necessarily better.
If your Direct Sell-Through Rate goes from 65% to 85% because Sales heavily discounted your inventory, did the business actually improve?
Maybe not.
For today, I’m focusing on Direct Sell-Through Rate: the percentage of inventory available to your direct sales team that actually gets sold through that channel. There are related concepts like fill rate, premium sell-through and programmatic sell-through, but let’s keep our focus on direct.
Why do people want an STR target?
In some businesses, utilization contributes very directly to profitability.
Airlines are the obvious example. Airlines have significant fixed and variable costs, and an empty seat disappears as soon as the plane takes off.
Digital advertising is different.
Digital publishers have fixed costs associated with people and infrastructure, but the incremental cost of serving an extra thousand ads is tiny. And unsold Direct inventory may still have significant value through other channels like Programmatic.
That doesn’t mean STR isn’t important. It means that maximizing Direct Sell-Through isn’t necessarily the objective.
This question also comes up frequently when a company hires a CFO who is new to digital advertising. Similarly, companies running Retail or Commerce Media networks can find themselves being asked about STR because utilization or load rate is important in their mainline business.
This is where anchoring becomes dangerous. Someone comes into the conversation with a number from another company—or even another industry—and decides that 75%, 80% or 85% must be the “right” Sell-Through Rate.
It may have almost nothing to do with the economics of your business.
Sell-Through Rate is a Goldilocks metric
I’ve previously talked about “Goldilocks metrics.”
The idea is that there is a range of acceptable values. You don’t want to be at the extremes, but that doesn’t mean there is one specific number you should target.
Consider those extremes.
0% STR: Hopefully this only happens when launching a new site or ad product. Otherwise, it means people don’t want what you’re selling—at least not at the price you’re selling it.
Internally, stress levels are high. People are asking questions about customer feedback, pricing and whether the operations are working correctly.
100% STR—or close to it: This creates a completely different set of problems.
You have advertisers who want the same impressions or campaign dates and you have to say no.
Operational issues or downtime can result in campaigns not delivering.
You can never predict your inventory with 100% accuracy, so everyone is constantly worried about whether you can deliver.
And inevitably someone asks:
If we’re almost sold out, shouldn’t we be pricing higher?
Even though 100% sold out is financially much better than 0%, organizational stress can be just as high.
Somewhere in between is an appropriate range.
But that range is going to be different for every business.
It depends on things like:
- How predictable your inventory is.
- How seasonal demand is.
- How much inventory needs to be reserved for late-arriving demand.
- Whether unsold inventory has a strong programmatic monetization alternative.
- How differentiated or scarce your inventory is.
- How costly underdelivery or make-goods are.
Changes over time matter too
Sometimes it is less about the absolute level and more about the trend.
You can have a perfectly respectable STR, but if it is lower than it was at the same time last year, people will start asking questions because it can signal weakness in the business.
But STR can also fall for reasons that are very good for the business.
Maybe you acquired a new website or launched a new property, so there is a lag before you sell the new inventory.
Maybe you increased your ad load.
Maybe Direct Sell-Through dropped because Programmatic demand is so strong that it is crowding out the Direct channel.
That can be a great problem to have.
Ask these 4 questions instead
Instead of asking, “Is our STR high enough?”, ask:
1. What is changing? Is STR rising or falling, and where?
2. Why is it changing? Demand, price, inventory growth, ad load, product mix, channel mix?
3. Is the change economically good or bad? A falling Direct STR because Programmatic demand exploded might be excellent. A rising STR because Sales heavily discounted might be terrible.
4. Does it require an action? Change prices? Reallocate inventory? Increase inventory? Fix a product problem? Or do nothing?
So, monitor Sell-Through Rate. Understand why it’s changing. Use it as an input into your financial planning.
But don’t turn it into an arbitrary organizational target.
Sell-Through Rate is a diagnostic metric—not an objective function.