Key performance indicators, also known as KPIs, are the essential metrics that every retailer should monitor to analyze the health of their business. Numbers don’t lie, and KPIs can help you see where your business is thriving, where you are falling short and, most importantly, how you can make positive changes to ensure you’re business continues to grow.
There are hundreds of different KPIs that your retail business could monitor, but which carry the most weight as you plan for the future? Are some KPI’s more valuable than others for retailers? Here are the top 10 key performance indicators that successful retailers should be tracking.
1. Sales Per Square Foot
If you have brick-and-mortar locations, you know that store layout and product presentation can greatly influence a customer’s purchase decision. Sales per square foot can be calculated by dividing your net sales by sales floor, showroom, or gallery space.
You’ll learn how much it costs to maintain and staff your space compared with the amount of sales revenue that the area generates. This metric is a good indicator of your store’s productivity and will let you know if you’re making productive use of the space, layout, and merchandise displays.
Calculating your sales per square foot could also reveal that you need to seek a more affordable location or diversify and add online sales to your business plan, where consumers can make a purchase without visiting a physical location.
2. Conversion Rate
Your conversion rate is the proportion of the total number of visitors to your store or website to the total number of shoppers who made a purchase. This metric basically tells you how well your sales staff is performing, as well as how much your product or service appeals to consumers.
If you own an eCommerce business with an online storefront, conversion rate can help you understand how effective your online forms and landing pages are—and if you need to improve user experience on your website.
If your conversion rates are uninspiring, you may want to diversify the products and services you offer, give better sales training to your employees, or perform some heat map testing of your website to pinpoint where you can improve user experience. You can also consider implementing customer service solutions like webchat. You can offer instant, automated customer service through a pop-up on your site. This improves conversion by helping your customers get the information they need exactly when they need it—without the wait.
3. Inventory Turnover Rate
Inventory or stock turnover rate is how much merchandise your retail business is selling on a daily, weekly, monthly, quarterly, or yearly basis. It’s calculated by measuring the cost of goods sold divided by the cost of the average amount of inventory you have on hand.
While it’s expected that your inventory turnover will fluctuate throughout the year as you hit seasonal sales dead periods and high points, you always want turnover to be increasing healthily from quarter to quarter. If you suddenly experience a sluggish turnover rate that cannot be explained by a seasonal low, you’ll know you need to take action.
4. Sales Per Employee
Sales per employee is calculated by dividing your net revenue by your total number of employees. Keeping track of sales per employee helps you make more productive staffing decisions and optimize your labor costs. For instance, you may find that you are overstaffing or understaffing your sales floor—pay attention to when sales peak or dive per employee and adjust staffing accordingly.
Sales per employee also helps you set employee sales goals, determine how many new employees you’ll need to hire seasonally, and how much you need to budget for training, pay bumps, and performance bonuses.
5. Gross and Net Profit
Gross profit is your selling price minus the cost of goods sold. Net profit is calculated by subtracting all expenses from all generated revenue. Gross and net profit are crucial KPIs to determine if your business is making money or losing money—and where you can tighten profit margins.
For instance, if your gross profit is low, then you can explore other product sourcing options and try to lower your cost of goods. If your net profit is not where you need it to be, then you can rethink staffing and infrastructure choices to reduce expenses.
6. Year Over Year Growth
One of the most important goals for retailers is to have sustained growth over time—increased revenue from each year to the next. Comparing year over year performance can provide valuable insight. If there is a downward pattern, you’ll know you need to determine why and how you can recover. When you’re seeing a positive trend, knowing at what percent you are growing each year can help you set realistic goals for the future.
While certain factors may be out of your control, such as an economic recession, you do have control over many financial decisions to improve your year-over-year growth.
7. Online vs. Brick and Mortar Sales
If you have both an e-commerce store and a brick and mortar store, it’s important to compare sales metrics and revenue for each so that you can designate business resources accordingly. Consumers use multiple channels to shop, so also pay close attention to how your physical store influences your e-commerce sales and vice versa. You may find that while you make more sales in-store, many in-store customers are contacting your sales department online long before they visit a physical location. Or, customers may be visiting your brick-and-mortar store and then purchasing goods online later.
8. Return Rate or Refunds Requested
Return rate or how often refunds are requested is a good way to measure the quality of the products and services you’re selling. It also tells you how satisfied your customers are with their purchases. You will, obviously, want to know the reasons behind returns, so make sure to get as many details as you can when the return is processed. If your return rate is high (over 10%), it could be a quality control issue, an advertising problem, or even a failure of your sales staff.
9. Customer Retention and Positive Reviews
Repeat customers are the financial backbone of any successful retail business. As a retailer, you need to inspire loyalty in your customers to encourage them to continue buying your products and services. And leave positive reviews that signal to other consumers who haven’t yet converted that your business is trustworthy.
Tracking customer retention and measuring the number of positive reviews you are earning online can help you make the right decisions to streamline customer service and improve sales funnel automation. If you aren’t earning repeat business, your online reviews can help you pinpoint why and fix the issue. Reviews can also help you understand how you can amplify the good things you are doing to boost sales and earn those high-value, loyal repeat customers.
10. Average Spend
Average spend can be calculated by dividing your total revenue by the total number of sales transactions. If you have plenty of customers coming to your online or brick-and-mortar store, but your average spend is low, you may need to tweak product placement, your store layout, or offer training to your sales staff to upsell and cross-sell more effectively. You may also want to offer product bundles, discounted tiered pricing, or monthly service memberships.
Track Your Retail KPIs for Success
Tracking KPI’s allows you to have a high-level view of the performance of your retail business—where you can streamline processes and which software solutions you’ll likely need to improve sales and customer satisfaction. Now that you know which key performance indicators are essential for retailers to track, you’ll be better prepared to tackle monthly, quarterly, and annual reporting.
Key performance indicators, also known as KPIs, are the essential metrics that every retailer should monitor to analyze the health of their business. Numbers don’t lie, and KPIs can help you see where your business is thriving, where you are falling short and, most importantly, how you can make positive changes to ensure you’re business continues to grow.
There are hundreds of different KPIs that your retail business could monitor, but which carry the most weight as you plan for the future? Are some KPI’s more valuable than others for retail.
