The 7 Essential Metrics Every Retailer Must Track
Smart retailers value data and base their business decisions on careful analysis. It’s the path to success in today’s ultra-competitive retail environment. But just because available data and a little analysis can tell you the average profit made between 2 and 4 p.m. on the third Tuesday of every month, it doesn’t mean it’s worth your time to find out.
So, how do you optimize your data, dial in on the right analytics, and make the best use of your time? We’ve got you. Here are seven essential Key Performance Indicators (KPIs) that tell you exactly what you need to know about your retail business.
1. Conversion Rate
It’s simple. How many customers come into your store? How many make a purchase? By tracking this metric over time, you’ll gain insights into store traffic, buying patterns, or the impact of promotions. When you know this number, you can test different strategies to drive it up, such as adjusting your store’s layout or marketing.
The calculation is straightforward. Simply divide the number of sales transactions by the number of shoppers.
2. Average Transaction Value
Measuring how much your customers spend per transaction helps you keep your finger on the pulse of your business and identify customer trends. Calculate the number from a few different angles – daily, quarterly, and annually – for insights that can help you determine pricing and selling strategies.
To determine the average transaction value, divide the total revenue for a defined time period by the number of transactions during that period.
3. Sell-Through Percentage
This number is crucial for understanding your inventory. The sell-through percentage tells you the percentage of items sold compared to the total that were for sale. Monitoring the percentage teaches you how different products are performing, helps you determine when to offer discounts, and helps identify appropriate re-order timing.
Calculate the sell-through percentage by dividing the number of items sold by the original inventory quantity. Then, multiply the result by 100.
4. Sales Per…
Leverage your Point of Sale (POS) system to gain a deep understanding of sales patterns and selling abilities. You should be able to track key data points such as the sales per square foot, product category, employee, or time of day. Having this type of information at your fingertips enables you to identify best selling items, identify successful sales techniques, or analyze the sales history for a particular product.
The simple calculation provides highly useful information. Just divide the total sales by the number of square feet, employees, etc.
5. Inventory Turnover
Also known as stock turn, inventory turnover is the number of times an item in inventory sells through in a set time period, such as a month or year. Typically, when it’s higher, it means your selling a lot without overstocking the amount you have in inventory. Keeping an eye on fluctuations in this KPI enables you to effectively manage your inventory, reduce costs, and increase profits.
Here’s the formula for determining the inventory turnover: For a specific time period, divide the cost of items sold by the average inventory. Related: The Secret to Retail Success? 3 Must-Have Inventory Management Capabilities
Sticking with the inventory management theme, you should always keep tabs on how your physical inventory lines up with the totals in your inventory management system. By taking inventory regularly, you’ll be able to identify anomalies caused by shipment errors or shoplifting, as well as account for damaged items.
To determine shrinkage, conduct an inventory and then calculate the total cost of items. Subtract the cost from the total cost of goods in your accounting records.
7. Profit Margins
Last but certainly not least, it’s critical to have a current handle on exactly how much money you’re making. There are two important numbers to track: your gross profit margin and your net profit margin.
Your gross profit margin provides an important indicator of sales and production. Typically, it’s used to understand the performance of product categories or individual products. To determine your gross profit margin, subtract the cost of goods sold from your sales revenue. Then divide that amount by your sales revenue to express as the percentage of revenue that became profit.
Net profit measures the performance of your overall business by letting you know how much profit you’re making after accounting for both the cost of goods sold plus all other operational expenses. First, determine your net income by subtracting all of your expenses from your total revenue. Then, divide that number by your total sales revenue, and multiply the result by 100 to express as a percentage. Your POS system should make tracking these essential retail metrics simple. Along with comprehensive point-of-sale capabilities you can customize to fit your business, POSIM delivers robust, integrated inventory management and reporting. It’s easy to monitor important metrics and make data-driven decisions with POSIM’s standard or create-your-own reporting options. And, POSIM’s unmatched tech support team is with you every step of the way to help you optimize your data. Contact us for a demo to see what POSIM can do for your business.