Given the complexity of retail operations and day to day increasing demand for modern-day working, the use of “Retail Formulas (Math)” is an in-trend skill & practiced in different ways these days by retailers, managers, retail professionals, and other retail representatives.
They use them to assess stock buying plans, break down marketing projections, add-on mark-ups, and apply price comparison to project stock and sales analysis in the store.
Although most accounting programs can crunch the numbers for you, as an entrepreneur or manager/supervisor you should know the most widely recognized Retail Math Formulas that are utilized to follow the stock, measure secondary sales execution, decide revenue amount, and help make estimating sales operations at different levels.
1. Acid -Test Ratio
Acid -Test Ratio = Current Assets – Inventory ÷ Current Liabilities
This is an estimation of how well a business could meet its short-term financial commitments if sales unexpectedly halted. The motivation behind this computation is to decide how effectively an organization could be sold and enables financial basics to decide financial security.
2. Gross Margin Working
Total sales – Cost of Goods Sold
Ideally, it is a simple formula of Sales minus COGS (Cost of Goods Sold).
3. Like2Like Sales Ratio (Year on Year)
Current Year sales ÷ Last Year Sales – 1
Like 2 Like sales, monitoring is one the most essential aspect of retail businesses this gives you a clear picture of how your business is moving ahead in terms of secondary sales.
4. PSFPD (Sale Per Sq Ft Per Day)
Total sales ÷ Total Retail Area ÷ Total Number of Days
A very important exercise of retail business where the retailer gets to know his per day productivity in terms of the retail space he has taken on for retail purposes. PSFPD
5. Average Sales Price (ASP)
Total sales ÷ Total Quantity
This gives you clarity on the MRP analysis and range selling ability of the store.
6. Average Basket Value (ABV)
Total sales ÷ Total Invoices
This gives you clarity on the quality of Customer comes to buy as the higher the basket value more premium is the brand and its customer base.
7. Average Basket Size (ABS)
Total unit sold ÷ Total invoices
This gives clarity on the quantity sold per invoice (basket), more is the ABS more will be the staff quality and add on sale & cross sale.
8. Sales Conversion Rates
Total Transactions ÷ Total Customer Walk-ins
Sales Conversions are the simple KPI toll to measure the converted customers walked in the store. The better the conversions better will be the sales
9. Sales to Retail Staff Ratio
Total Sales ÷ Total Staff (ideally it should in the limit of 2 to 3 time to the sales)
As it sounds, it is a simple calculation of total staff hiring in a direct proportion of the total sales. This takes the value out of strategic staffing.
10. Return on Investment
Retail ROI = Net Retail Margin ÷ Cost of Investment
ROI working is something that every retailer needs to understand in detail before going ahead to start any project/store or even in an existing setup. while preparing your ROI sheet.
11. Product Sale Through Rate
Total Purchase Quantity ÷ Total Sold Quantity
One of the retail math formulas need to be done on a frequent basis to understand seasonal ordering and marketing. This is the key parameter to avoid the buying of low-performing categories in alignment with the choice of your TG.
12. Inventory Turnover Ratio
Total Sales ÷ Average Stock on Hand
It is calculated by measuring the Total sales and dividing that by the cost of the average amount of inventory on hand (SOH). For example, if your store sold INR 200,000 worth of Denim and you have an average of INR 50,000 worth of Denim on hand, your turnover rate would be 4 times per year.
13. Break-Even Rate
Break-Even = Fixed Costs ÷ Gross Margin Percentage
This is the point in your retail business where sales margin (profit) equal expenditures. There is no profit and no loss situation.
14. Stock Turn Over Ratio
Total sales ÷ Average stock holding (Beginning of Month Inventory + End of Month Inventory ÷ 2)
This gives an idea of the investment rolling capacity of business and the limit of investment for sellers and retailers. A very important tool to know the exact investment by the channel partner.
15. Net Realized Business Margin
((Total sales X Invoice margin) – Discount) + Scheme/CN Amount = Net Realized Margin
This gives an idea of the net margin in business post discounts and offers if any.
16. Sales to Expenses Ratio
Total Expenses ÷ Total Sales
This is simple work to know where the store is bleeding or not. The excellent sales to expenses ratio is below 25% in major consumer retail business and may differ case to case to basis due to different margin structure.
17. Discount Percentage Rate
Total Discount ÷ MRP sale
To know the discount provided in the given sales period.
18. Open to Buy (OTB)
Expected Sales + Expected Discounts + Expected End of Month Inventory – Expected Start of Month Inventory
Ideal for large format retail stores like Apparels, Footwear, Accessories, etc. Where there is a great and regular need for merchandise planning.
To be continued….. stay tuned and visit again as will keep updating more Retail Math Formulas in the same post with more new unique and useful retail math finding & learning.
Dynamic Retail Math Kit For Retail Success
Dynamic Retail Math Kit Includes:
This downloadable product is a complete guide to provide you the handy and applicable knowledge on retail math skill sets, which is one of the most important know-how in the retail industry and in-demand skill set.
- E-BOOK (PDF)
- RETAIL MATH EXCEL SHEET (WITH EXPLANATION)
- INVENTORY ANALYSIS SHEET (EXCEL)
- SALES ANALYSIS SHEET (EXCEL)
- HOW TO IMPROVE RETAIL MATH SKILL SET?
- ROI SHEET – (EXCEL)