The retail industry is one of the most competitive in the world. A successful business must constantly analyze what might make them grow. By keeping up with trends around your niche market, and also considering your business specifically, one must take a holistic approach to improve a company’s performance. Each factor is often described as a key performance indicator, or, KPI. There are hundreds of measurable retail KPIs but a handful of them are of particular and ubiquitous importance across the vast realm of retail.
1. Gross Margin
Most would imagine that gross profit is a more important measure of success. But a company’s gross profit is entirely dependent on the size of the company in question. A major retailer’s gross profit might be 1,000 times that of a local boutique but the boutique could be a much more successful operation. Gross margin, however, is a more enlightening statistic. This KPI measures gross profit as a percent of gross sales. It helps determine reasonable markup prices. Adding additional factors into the equation – locations, categories, times – can provide even more insight into a business’s ideal strategy.
2. Sell-Through Rate
A sell-through rate measures the ratio of the number of units sold in a given period and the initial on-hand inventory for the period. In other words, it provides the percentage of inventory of a specific product that was sold over a chosen time period. Such a metric is key for seasonal ordering and marketing. And like most KPIs, it’s helpful to have a substantial history for purposes of comparison.
3. Year-Over-Year Sales
Speaking of keeping a history of sales on hand, year-over-year analytics is one of the more basic, but essential KPIs. Unfortunately, too many small businesses use this KPI alone. It is much more valuable when coupled with another KPI. Year-over-year numbers might show that your business grew in a certain area, but it’s crucial to understand exactly why that happened. This way, you can continue to implement useful strategies.
4. Sales per Square Foot
Some KPIs give you a perspective on your store layout. This determines how efficient your precious space is being used. It also is an indicator of staff performance. It’s essential to measure this before and after a retail redesign. Larger retailers also compare this measurement across different locations in an attempt to identify any cultural or social differences that might impact sales. Alternatively, business owners measure sales per linear square foot of shelf space if that is more relevant for your store layout. Your POS makes this process a lot easier with the right solution. The image below shows how KORONA breaks down sales by total retail space.
5. Average Customer Spend
This KPI may be one of the more rewarding to investigate. It encourages business owners to get creative with product placement, store layout, upselling, POS marketing, etc. in order to encourage each customer to spend those couple of extra dollars.
Measuring the average customer transaction value identifies specific target areas, especially when measured against the average number of units purchased. For instance, if your retail store has a high number of units sold but a lower average customer spend, perhaps it would be advantageous to implement product bundles or upsells.
6. Conversion Rates
This measure is taken by dividing the total number of transactions by the total number of customers in your shop. It determines the success of some in-store components of your business, such as customer service, store experience, and layout. It’s hard enough to get feet in the door, so you want to make sure you don’t have a low conversion rate. This metric should be evaluated often, especially when there are changes in personnel or merchandising.
7. Stock Turnover Rate
Simply put, this measures the rate at which a certain product is sold. It’s calculated by measuring the costs of the goods sold and dividing that by the cost of the average amount of inventory on hand. For instance, if your store sold $100 worth of apples and you have an average of $5 worth of apples on hand, your turnover rate would be 20 times per year. This KPI aids in measuring how often you should be ordering and optimize the number of a certain product that should be on your shelves. Ideally, you want similar products to have a similar stock turnover rate. If you have a multi-location operation, this KPI, like many, should be measured against other shops. Reports, like the one below from KORONA, do the math for you so you can spend more time on making changes to improve your business.
8. Product Returns
As straightforward as it sounds, this evaluates the percentages of sales that are returned. A high rate of return could mean that customer service needs to be improved. Or that product design needs to be tweaked to better represent what is being sold. Or simply that your product isn’t all that great.
9. Shoppers to Staff Ratio
This takes the guessing out of strategic staffing. It keeps a content staff, while also optimizing your labor costs. This can also be paired with your conversion rate metric to determine a period in which you might be under- or overstaffed. If you see a sudden drop in your conversion rate and a high shopper to staff ratio, you’ll know that heavier staffing will probably increase sales and is worth the bump in labor costs.
10. Gross Margin Return on Investment
GMROI, for short, tells you how much your profit was based on the amount spent on inventory. So if you sold $100,000 in product and your inventory cost was $50,000, your GMROI would be 2 (you earn $2 for every $1 invested in inventory). This indicator gathers information on both individual products and inventory as a whole. Careful investigation of the GMROI makes it easy to determine which products to push and where to place them in your retail space.
Your POS Can Help with Your Retail KPIs
Advanced POS software like KORONA’s helps retailers analyze important data, like these KPIs and many others. Through customer databases, detailed inventory tracking, smart reporting and much more, your point of sale solution must be much more than a cash register. Click below to find out more about KORONA and the best retail POS system on the market.