Retail metrics are crucial for understanding your business’s performance. If you don’t know the numbers, you’re missing most of the story. Even if you are tracking your metrics, if you're only following three or four of them, it isn't enough. That's why we've put together a list of the nine top retail metrics you should be tracking to improve your store’s performance, bring in more customers and raise your bottom line.
Retail Key Performance Indicators (KPIs) give you a direction for improving your performance. Think of them as your goals, agaisnt which you can measure your retail metrics. For example, if your retail metric is sales per employee, your KPI might be a certain (higher) number of sales per employee, with a date by which you want that number reached.
You won't find one definitive list of retail KPIs and metrics to track because every store selects different ones based on their goals. You can, however, start with basics like sell-through rate or conversion rate and go from there.
Using different metrics based on your KPIs will get the most out of the tracking process. For example, if your store needs better inventory management, you might want to track inventory turnover or inventory to sales. Likewise, if you want to improve your growth, you might track metrics such as year-over-year (YOY) growth or growth margin return on inventory investment.
Regardless of your specific goals, developing retail KPIs and striving for them with the appropriate retail metrics can help you survive the so-called retail apocalypse that businesses are facing today. It also provides insights that can enhance your financial analysis process and boost your net and gross profits.
As we said, you could undoubtedly pull up dozens of retail metrics to track, but if you start with too many, you're likely to get lost in the data. Plus, you won't need to track every metric on every list, just the ones that matter to your business's retail performance.
To make the process easier, we've outlined nine of the top retail KPIs and metrics that can help businesses in almost any industry.
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Your business’s gross margin return on investment, or GMROI) is calculated by dividing your gross margin by your average inventory cost. It is an inventory profitability evaluation ratio that will give you insight into your business’s ability to turn inventory into cash, after the cost of inventory. Your GMROI can help you improve both your gross and net profit by allowing you to find the items in your inventory that give you the biggest return on your operating expenses.
Customer traffic, also known as foot traffic, is the presence of people walking through your space. As you might imagine, it is particularly important for retail stores because more customers result in more sales. Foot traffic can be tracked with physical counts or through a survey if the business needs to outsource.
The percentage of customers your company has retained over a tracked period is your customer retention rate. This is a critical metric and, when used in conjunction with your churn rate (number of customers lost in a given period), it can tell you which strategies work for your business. For example, if you just decided to accept credit card payments, you’ll likely see that it improves customer retention by elevating the customer experience in your store.
To calculate customer retention rate, you’ll need to know three numbers:
New customers during the period (NC)
Customers of the end of the period (TC)
Existing customers at the beginning of the period (EC).
You can then find your ratio with the following formula:
((TC-NC)/SC)*100 = Customer Retention Rate
Your sales per employee ratio is determined by dividing your annual sales by your total employees. This easily accessed information can help you get a sense of your business’s financial health and employee productivity. It’s also an indication of how expensive your business is to operate.
Your customer conversion rate is one of the most critical ratios on this list. This metric is the number of visitors that your business converts into customers. You can calculate your business's conversion rate by dividing your number of visitors by your number of sales.
Your conversion rate allows you to measure the performance of your physical and online stores, as well as your employees’ and your own ability to “make the sale.” Understanding how many of your customers are converting can help you identify areas for improvement, be it new customer retention strategies, new inventory items or a new POS for improved service.
Inventory turnover, also known as your stock turn, shows you how many times your company has sold and replaced your inventory during the tracked time period. This metric can help you make better choices for manufacturing, marketing, pricing, and managing your purchase orders. You can calculate your inventory turnover ratio by dividing your sales by your average inventory.
Calculating your sales per square foot allows you to determine how much revenue your business creates for every square foot of sales area. This can help measure the efficiency of new sales spaces and also give you ideas for improving your product displays. Sales per square foot is calculated by dividing your sales by the square feet of sales space in your retail location.
This metric will vary widely based on the industry in which you work. For example, a jewelry store will have a much higher sales per square foot than a large department store, but they may also have a lower average conversion rate because of the high price of their inventory.
The average transaction value metric allows you to examine how much the average customer spends in your store in one visit. You can calculate the average purchase value easily by dividing the total dollar amount of your sales by the number of transactions in the given time period. It also shows you where you can upsell to increase your average transaction value.
Don't forget to consider the costs involved in the sales process and use cut-off periods to keep your numbers accurate.
Year-over-year growth is an essential metric that shows the performance of your business from one year to another. The comparison is typically for a month or quarter period, which is compared to the same month or period from the previous year.
You can calculate year-over-year growth by subtracting the previous year’s period total from the current year’s period total. Year-over-year-growth isn’t just a way to see potential for improvement; it’s also a great metric for revealing your success as a business as you watch the numbers grow!
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