When I see the terms "Sell-In" and "Sell-Out" I immediately think of wholesale, where sell-in is the sales the wholesaler makes to the retail account and sell-out is the sales the retailer makes to the customer. If that's the case, the most important part of the process is to get agreement on the grain of the product. Could be the UPC, could be the wholesaler's ID. You'll need to create the mapping so you can evaluate the inventory balance set. For fluctuating inventories you'll want to set up a balance set something like this: Ending Onhand = Beginning On Hand + Shipments (sell-in to the retailer) - Sales (retailer to customer) - Return to Wholesaler. Also, be mindful of the inventory valuation: retail, cost, and units. You should know the cost since it came from the wholesaler. Hopefully the retailer will provide the retail.
It's possible you might be referring to "Sell-Thru" which is the amount of inventory that has been sold to date. For fluctuating inventory, you'll again want to set up an inventory balance set but also have a cumulative inventory calculating. So, Beginning Onhand + All receipts. This line item will give you the denominator. A cumulative sales line item will provide the numerator. Cumulative Sales / Inventory received in the same time period.
Let me know if either of these meets your use case. Happy to pivot a different direction if you need.
It will be option 1 that we are considering. I think the mechanics are fine it was more a case of how people account for fluctuating inventory levels which I guess is an adjustment such as Returns as you mention in your reply. I guess it may be as simple as creating a parameter to apply to the Stock In Hand levels to erode the levels.
Sell Out will be the harder of the two because it all depends on whether the retailer provides their sales and inventory. If they don't, then yeah, you'll have to rely on what you sold-in to the channel and look at the frequency and volume of their purchases.
Not sure if this article will help you or not, but it goes into a lot more detail about how to plan the inventory.