Retail commerce | Management
7 Metrics for Gauging the Health of Your Store
November 09, 2016
You've probably heard some of variation of "If you don't measure it, you can't improve it." But there are so many ways to measure the performance of a store, it can be tough to determine which metrics, besides the all-important profit margins, are the most meaningful. Below are a handful of key performance indicators (KPIs) crucial to gauging the health of your retail business—and to helping you improve it.
Sales per square meter/foot
This one is pretty simple to calculate: Divide your revenue by your store's sales space. So if the sales area of your shop (don't include your backroom or stock area) is 250 square meters and you sold £50,000 worth of merchandise in the past month, your sales per square meter for the month would be £200. Is that good? It depends on the type of merchandise you sell and where you are located; you can check the annual reports of publicly traded competitors to see how you compare, as well as get baseline metrics from trade associations and the like. If nothing else, this is a handy metric for gauging your store's performance over time or, if you have multiple shops, the performance of one against the others.
Also called footfall, this indicates how many people visited your store during a given time period. Myriad tools can help with this, from basic people counters to mobile tracking technology to video surveillance. "By using people counters and other foot-traffic tools, you can find out your store's peak traffic hours and making staffing decisions accordingly," according to a white paper by point-of-sale software provider Vend titled "Key Performance Indicators: 10 Metrics for Guiding and Measuring Store Success." What's more, changes in foot traffic—or a lack thereof—can help you determine the effectiveness of particular advertising or marketing campaigns so that you can refine your efforts going forward. And according to Vend, "Foot-traffic analytics can tell you which parts of your store are getting the most and least traffic. In addition, the data can also give you an indication of where people are getting stuck or if there are any bottlenecks disrupting visitor flow, enabling you to improve your store's layout."
You need to know your foot traffic to calculate this metric, which is the percentage of people who came into your store who actually made a purchase. Just divide the number of transactions for a given period by the foot traffic during that same period. If 100 customers came into your store in a day, and 32 of them made a purchase, your conversion rate for that day was 32%. Adverts, marketing campaigns, merchandise mix, and sales staff can all account for increases or decreases in conversion rate. "Measure your conversion rate on a regular basis, and whenever you make changes in your store," Vend suggests. "For example, if you're making some staffing changes, be sure to track conversions before and after you do it so you can make comparisons."
4 and 5
Average basket size and average ticket size
These are sometimes referred to as average units per transaction and average sales per transaction or average transaction value. The former lets you know, on average, how many items each customer buys at a time; the latter tells you how much each customer spends at a time. These two metrics go hand in hand in that an increase in the number of units per transaction will lead to an increase in average ticket value per transaction. "This figure can be influenced by offering volume discounts, point-of-sale promotions, and personal recommendations by the salesperson (upselling/cross-selling)," Benedict Wong, vice president of business development for POS system provider Bindo, wrote in a blog post titled "Six Retail Metrics You Absolutely Need to Track for Your Store." "Keeping a variety of products and having all the sizes available also contributes in increasing the average ticket size."
This tells you the percentage of stock that you actually sold, and you want to measure it for items and categories of items. If you bought 50 size B widgets in blue and sold 30 of them in a given quarter, your sell-through rate was 60%. Knowing your sell-through rate of particular products can help you fine-tune your merchandising and buying strategy going forward as well as determine which products you should discount.
Stock turn rate
Also known as inventory turnover, this is the number of times the store's inventory value is sold throughout a given time period, typically a fiscal year. You're not measuring how many times a particular item has been sold out and restocked but rather the value of your inventory overall. So if your annual sales were £10 million, and on average you held £2.5 million worth of inventory, you had a stock turnover of 4. As with sales per square meter/foot, you can find turn rates for publicly traded businesses in annual reports and for other stores in your sector via trade associations. Generally speaking, a higher turn rate means a healthier business: It suggests that you're not holding onto stock for too long or overordering merchandise. However, too high a turn rate can indicate that you're not ordering enough merchandise, leading to your missing out on sales due to being out of stock.