26 FEBRUARY 2018 / INDUSTRY INSIGHTS
5 retail metrics for better business planning
Sometimes, numbers can be nothing but an eye-sore. However, focussing on the right KPIs (Key Performance Indicators) and trusting them, can give you the reassurance and bird's eye view you need to understand the present and foresee future growth potential, or health risks.
In our experience, peace can be found in the numbers. They don't lie and leave little to your imagination. They also reveal growth possibilities and make you efficient in pursuing them.
It isn't a huge calculation you need that dissects and analyses every part of your business. It's just a few simple*-ish* KPIs that you can familiarise with and easily stay in sync with. Here's 5 to try out!
1. Conversion Rate
Your conversion rate is the percentage of guest traffic that turns into paying customers. For example, if 10 people enter your store and 6 of them make a purchase, your conversion rate is 60%
Simply divide the number of sales by total traffic to work out your conversion rate.
We recommend plotting conversion rates month-by-month. By doing this, any changes you make in-store to increase sales can be measured by conversion rate.
Collecting gross traffic data can be done in two ways.
- Take small sample sizes, have a member of staff count total traffic and purchases over a 1 hour period. Do this 4 (the more or better) times a month for accuracy.
- Use Beambox for your Guest WiFi. Beambox will automatically track business traffic, then you just combine it with your transaction figures and out pops your conversion rate.
2. Sales Per Square Foot
This is the revenue figure for each square foot of your business sales space. It should include all areas, such as fitting rooms and storage rooms.
To work Sales Per Square Foot out, just divide your sales figure by the store's total square footage of sales space.
It lets you know how effective you are with your space and arms you with valuable data for expansion. It's also great if you already have multiple locations and are looking to compare the efficiencies of each location.
3. Sell-Through Rate
This is a percentage figure that evaluates how much of a product you are selling, relative to the total amount of stock available for this product.
Calculate it using this formula: (number of product units sold/initial inventory) x 100
Take a record of this data over a relevant timeframe and use it to highlight inefficiencies in inventory. If you are stocking more than you should, you're either wasting resources or tieing up cash flow that could be used elsewhere.
4. Sales Per Category
This is an adaption of the sell-through rate, but one that is crucial for identifying inefficiencies that aren't so straightforward. KPIs extend beyond products and their sales. Anything that you can categorise sales by is a metric worth exploring.
Product Type, Value, Employees and Departments are all good examples of categorisations.
How do you know when a category is worth pursuing? Good question, but there isn't a golden answer. Typically, we look at volatility in metrics.
For example, if we're categorising sales per employee and at the high-end, we have an employee making 70 sales and at the low-end 17 sales, it's worth looking into. Why is there such diversity in performance? Can we fix it with training or better incentives? Find a solution and see how it affects your Sales Per Category metrics.
5. Gross Margin Return on Investment
Gross Margin Return on Investment (GMROI) lets you measure your profit return on stock investment. Put simply, how much do you get back when you put £1 into stock?
You can calculate this by dividing gross margin by average inventory cost.
GMROI is a great metric for determining stock performance, coupled with sell-through metrics you can determine the best selling, highest margin products and find the sweet spot in the middle. Use this understanding of your inventory to know which products to push through your marketing and sales efforts, to maximize your return.