Retail businesses have a lot to keep track of. From inventory and expenses to sales and marketing, you need to monitor many moving parts to ensure the business is running smoothly. One way to do this is by tracking key performance indicators (KPIs).
Running a successful retail business is all about numbers, and KPIs are the best way to track and understand those numbers. By tracking KPIs, you can see how your business is performing, identify areas of improvement, and make informed decisions about where to focus your efforts.
There are various KPIs that you can track, but not all of them will be relevant to your business. To help you get started, here are six KPI retail metrics that your business should track.
1. Sales per Square Foot
This metric shows how much revenue your business generates for every square foot of retail space. It’s a good way to measure your store layout’s efficiency and see if you are making the most of your available space. Sales per square foot will come in handy when planning the layout of your retail space and merchandise.
To calculate sales per square foot, divide your total sales for a given period by the number of square feet of retail space you have. For example, if your store is 1,000 square feet and you generated $10,000 in sales last month, your sales per square foot would be $10. You can improve this retail metric by improving your store layout or enhancing your product assortment to make more sales.
2. Sales per Employee
This is the perfect metric to use when planning your employees’ schedules. Sales per employee will help you determine the right payroll budget and give you an idea of how many employees you should have in your retail space at once.
To calculate sales per employee, divide your total sales by the number of employees you have. If you’re looking for better insight into your staffing and revenue, you can measure each employee’s revenue.
This would require you to use a point-of-sale system that tracks each employee’s sales. The system will help you identify which employees are your top performers and which ones need more training.
Improving your sales per employee means helping your staff make more sales. For instance, you can gamify the sales process to motivate your employees, invest in sales coaching, or set sales goals for individual employees.
3. Conversion Rate
The conversion rate measures the percentage of shoppers who make a purchase while they are in your store or website. In other words, it measures the sales you make out of the number of website or store visitors. It’s a good way to track the overall performance of your retail business and see how effective your sales strategy is.
The easiest way to calculate your conversion rate is to divide the number of sales by the number of visitors. For example, if you had 100 visitors to your store and 10 made a purchase, your conversion rate would be 10%. A good conversion rate for retailers should range between 20% and 40%.
Measuring the conversion rate is easier if your ecommerce store uses web analytics. It can be quite challenging if you have to track foot traffic. In this case, the best option is to use a system to track in-store traffic at the door to know how many people enter.
4. Inventory Turnover/Stock Turn
Inventory turnover is a retail metric that tells you how many times your inventory has been sold and replaced over a period of time. This metric gives insight into whether you are ordering too little or too much inventory.
To calculate the inventory turnover, divide the cost of goods sold by the average inventory cost. A low inventory turnover indicates a high risk of ending up with dead stock.
On the other hand, a high stock turn could mean that you are not ordering enough inventory. As a result, your customers might frequently see “out of stock” buttons every time they try to shop on your website.
When people can’t find what they are looking for, your business’s bottom line suffers due to lost sales. If you’re a retail business, a low stock count might damage your relationships with your customers.
5. Gross Margin Return on Investment (GMROI)
Gross margin return on investment (GMROI) is a retail metric that measures the profitability of your inventory. It tells you how much profit you are making for each dollar you spend on inventory.
To calculate GMROI, divide your gross margin by the average inventory cost.
A high GMROI means that your retail business is generating a lot of profit for each dollar you spend on inventory. This is a good sign that your retail business is healthy and efficient.
You can use GMROI to determine if your stock is returning a good profit. You can also apply the metric to specific product categories to better understand which merchandise you should prioritize having in your store.
6. Sell-Through Rate
This metric tells you the percentage of items your store sells compared to the number of available units.
Calculating this metric requires you to divide the number of units sold by the starting inventory and multiply the results by 100.
The sell-through rate is one of the retail metrics that will help you evaluate the performance of your merchandise. It will help you see your products’ selling speed and make informed purchasing decisions.
For instance, suppose you have stocked a new brand of grinders, and your weekly sell-through rate is over 80%. This will mean that the grinders are fast-selling. Such insight will help you determine how much stock to order to avoid stockouts.
Track the Right KPI Retail Metrics
Numbers don’t lie; they can show you a clear picture of your business’s performance by tracking the right retail metrics. Tracking these KPIs will help you make data-driven decisions to improve your bottom line.
And don’t forget to keep an eye on emerging relevant KPI examples for retail business, as the industry is rapidly changing. HQ Magazine is a great place to find all of the things that matter to retail businesses, from inventory management to retail metrics. To boost your business’s metrics, stay in the know with our coverage of emerging retail news.
