The brick and mortar store retail industry is one of the most competitive to function. A successful business in retail should constantly exercise different aspects that help them to score high in revenues and grow by keeping up pace with developments around your marketplace. Each aspect is often defined as a key performance indicator (KPI). There is many computable retail KPIs but a few of them are of specific prominence across the massive area of retail. Knowing & Learning which KPIs are most important for your business to track is the first step.
Before we move ahead to the analysis and practice of the KPIs we need to understand the importance of Data management here, as you also need the right software to breakdown your sales and data. Various small businesses have thousands of transactions and vast inventory counts, making it, at best, unrealistically time-consuming to analyze all of this by hand. You need to have a retail POS software presenting this data to you automatically in clear ways. The following methods become even more accurate if you have crisp data analyzed handy before you start implementing it.
- Gross Margin Working
Total sales – Cost of Goods Sold
This is the core point from where the business discussion gets a start as further all operating expenses get to deduct from the prime gross margin a retailer gets while he starts purchase of stock. Ideally, it is a simple formula of Sales minus COGS (Cost of Goods Sold).
- Like2Like Sales Ratio (Year on Year)
Current Year sales ÷ Last Year Sales – 1
Like 2 Like sales, monitoring is one the most important aspect of retail businesses this gives you a clear picture of how your business is moving ahead in terms of secondary sales. L2L growth again comes very handily when a retailer has to marginalize the profitability as it is directly proportionate to the revenue from the store or place of business.
- 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 the retail purpose. This score gives you an accurate measurement of the potential of the retail space whether the space is viable to do business or not. The highest is the score the more will be the revenue. Pl also read – PSFPD
- Average Basket Value (ABV) & Average Basket Size (ABS)
Total sales ÷ Total Invoices / Total unit sold ÷ Total invoices
This is also called average transaction value (ATV) & average transaction size (ATS) where customer average spends in-store is measured and worked upon for better upselling and add on sales enhancement basis number of transaction and total unit sold compared with the total sales. It guides and motivates retailers to get resourceful with product placement, store layout (VM), upselling, POS marketing, etc.
- 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 sales. It defines the attainment of some in-store components of your business, such as customer service, store experience, and layout with an idea to retailers to conclude to decide any promotions, SKU incentives for store staff, sprucing up the façade, Pdt training requirement for staff, etc.
- 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 valuing out of strategic staffing. It keeps satisfied staff, while also optimizing your labor costs. If you see a sudden drop in your conversion rate and a high sale to staff ratio, you’ll know that thicker staffing will perhaps surge sales and is worth the bump in labor costs or vice versa. Pl also read – Staff Management
- 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. This calculation happens with the cycle of 12 months into consideration but ideally, retailers should do with the complete calculation of five years before going ahead for any project. while preparing your ROI sheet.
- Business Sale Through Rate
Total Purchase Quantity ÷ Total Sold Quantity
This needs to be done frequently to understand seasonal ordering and marketing. This is the key parameter to avoid the buying of low performing categories in the alignment of the choice of your TG. This also helps retailers to prepare the list of the top-selling and low performing articles in-store and likewise alignment of stock inventory of store in line with demand.
- Inventory Turnover Ratio
Total Sales ÷ Average Stock on Hand
This KPI measures the rate at which a certain product or category is sold. 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.
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)