It is said that leadership is doing the ‘right things’, whereas management is doing things ‘right.’
When it comes to the corporate world, of course, not every businessman is a born leader. But anyone can be a great manager and make their business the leader in the industry. All that is required is sufficient knowledge and data to analyze and evaluate your organizational needs so as to make informed decisions in the best interest of your business.
However, in the retail business, this is easier said than done.
From handling the transactions and keeping track of the inventory to dealing with the customers; managing a retail business is a daunting task.
Usually, retailers will judge their organizational operations based on simple profit and loss calculations. But a net profit or loss is insufficient to decide whether your business is doing well or not; you need a much more detailed framework that targets different areas within your organization and gives you a comprehensive analysis of the overall business management and performance.
There are several other metrics that are used by the top retail brands to determine how their business is performing.
These metrics, called Key Performance indicators (KPIs), are used in various industries to gauge the efficiency of a company’s operations and the profitability of their buying and selling processes.
However, every KPI is not applicable to every business. Most KPIs are specific to a certain type of industry depending on what they measure and the results that they indicate.
To make your task easy, we have gathered the 25 most important KPIs used in the retail industry. So, whether you own a brick-and-mortar retail store, an online shop or a wholesale business, you can use these KPIs to keep track of your business performance and ease your management processes.
These KPIs have been categorized according to the different aspects of a retail business that they apply to.
Category: Sales and Revenue
1.Sales per Square Foot
Sales revenue is something that every businessman is bound to measure. But simply recording the ‘total sales’ is not enough if you want to make efficient use of the available resources in order to maximize your profits.
Measuring the sales per foot is one of the best ways to analyze the performance of your brick and mortar retail store.
As the name suggests, this KPI determines how much you earn for every foot of sales space. Simply divide the total revenue that you earn from sales by the total sales space in your store (i.e., the area where customers shop around) to find the sales per square foot.
Sales per square foot = total revenue from sales / total sales space (in square foot)
This will help you determine how effective the arrangement of your store and assets is. You can also use the results to make certain decisions about the store’s layout and marketing and inventory placement. It goes without saying that this KPI should be as high as possible.
This is the most significant measure of your business’s profitability. You can calculate it as follows:
Profit margin = Gross profit / Total revenue x 100
This KPI is important because it shows how much money you are earning from the sales of goods after the costs involved have been deducted.
Every day is not the same in a retail business. You must record your daily sales and then do a comparative analysis to determine whether you will able to reach your target sales or not. If there are any low-performing days, then you can take the required marketing or advertisement decisions to boost sales so that you don’t suffer a loss.
The formula to track this metric is:
Total sales on a day (or any other time period) / total sales on the previous day (or any other similar time period)
Sales count will be indicated on your POS system. It is the number of transactions made in a given time period.
So, it’s formula is, sales count = number of transaction at a given sales booth
This KPI can tell you the busiest shopping hours so that you can post the sales team accordingly. If your store is very large and has numerous check-out counters, then this data can also tell which retail booth was the busiest of all. You can then allocate that booth to the most efficient worker.
5.Cash Conversion Cycle (CCC)
Cash conversion cycle is a measure of the amount of time it takes for the money invested into your business (in the form of stock purchases, etc.) to come back to you in the form of revenue earned.
The lesser the time between buying goods and generating money from the resale of those goods, the more efficient your retail business is.
The formula to track this KPI is as follows:
CCC = DIO + DSO – DPO
Here, DIO stands for Days Inventory Outstanding,
DSO stands for Days Sales Outstanding, and
DPO stands for Days Payable Outstanding
Category: Customer Behavior
Foot traffic means the number of shoppers who visit your store in a given period of time.
This is usually measured via counters, but you can also use other methods such as heat sensors, video surveillance or even mobile tracking technology.
This KPI will give you great insight into your marketing and advertising techniques, your store’s layout as well as your staff management. Knowing which areas get the most customers and during what time can help you allocate your best sales staff accordingly.
Foot traffic = number of people visiting the store on a given day
This KPI indicates your store capability to turn visitors into customers.
To find the conversion rate for your business, divide the number of sales by the gross traffic.
That is, conversion rate = total number of sales / total traffic of visitors
For instance, if 10 people visit your store on a certain day and only one of them makes a purchase, then your conversion rate is 10%.
For online stores, this is calculated by your ability to translate inquiries, sales call and website views into actual transactions.
A low conversion rate means that you have potential customers but your business lacks in customer service, merchandising, shopper experience or the likes.
8.Average Transaction Value / Basket Value
Average transaction value tells you the average amount that a customer usually spends in your store.
Average basket value = total revenue from sales / total number of transactions For a wholesale business especially, this indicator should be as high as possible as it means customers are buying in bulk and/or they are buying more expensive items from your store.
As is evident by the name, product returns is a KPI that denotes the number of goods that were returned back by the customers.
Product returns = number of items returned / total items sold x 100
Keeping track of this metric helps you know if there are issues in the customer service or the quality of merchandise.
10.Customer Retention Rate