KPIs In Retail: 7 Essential Metrics to Level Up Your Retail Game
KPIs, or “key performance indicators,” are the essential metrics for your business to measure. They are numbers that you must regularly monitor in order to determine whether your business is on the right track.
KPIs In Retail
Every retail business is different, and specific metrics may be more useful to some than others. In General, KPIs are used to determine if a business is meeting its goals in terms of sales, growth, customer satisfaction, etc., and gauge performance to decide on the right course of action.
Understanding retail metrics can be a great starting point to track your performance. But in order to be running a fully-fledged retail business in the real world, it’s best to use a retail software solution, like V-Count’s Business Intelligence Platform, to crunch the numbers for you, save you time, and help you gain the insights you need much faster.
Sales Metrics & KPIs
Sales are the essence of any retail business, so it’s critical to pay special attention to them by considering the following KPIs:
1. Sales per employee
Measuring sales per employee is a valuable metric to consider when planning your staff’s schedules and initiatives. You can easily measure it with this formula:
net sales/number of employees
Why measure retail sales per employee?
This metric can help you make smarter employment decisions, particularly when it comes to hiring, scheduling, and compensation.
If you wish to dive deeper into your revenue and staffing, you can get more profound insights by measuring the revenue generated by each employee. You can then use that data to develop sales targets and determine your best sales associates.
How do you improve your sales per employee?
The obvious method to improve this metric is to get your associates to generate more sales. This may include actions like:
- Setting sales goals per employee
- Investing in sales training
- Motivating your staff to perform better
2. Sales per square meter
This metric relates to the amount of sales you generate per square meter of sales space.
net sales/total space
Why measure your sales per square meter?
Sales per sqm can tell you whether you’re making good use of your store space and fixtures and can be a good indicator of store productivity. This metric can be used when planning your store layout.
How do you improve sales/sqm?
Choosing the right techniques to enhance sales per sqm differs from store to store. Some general tips for applying include:
- Improve space planning & store layout
- Enhance product assortment
- Optimize prices & marketing promotions
- Increase transaction or basket value
- Invest in training your staff
- Increase your visitors dwell time in your store
3. Conversion Rate
A store’s conversion rate refers to the number of people who purchased out of the total number of visits. The following formula can be used to measure it:
number of sales/total number of visitors
Why measure your retail conversion rate?
Your conversion rate is an indicator of good you are at turning visitors into buying customers. While generating high footfall traffic to your stores is a great starting point, it won’t provide much value without the ability to convert those visits into transactions that generate profit.
How to improve your conversion rate?
Improving your conversion rate starts with your store employees. Your sales associates should be able to:
- Build a relationship with customers
- Provide helpful information and insights to visitors
- Be convincing without being pushy
4. Average transaction value (ATV)
This metric helps you better understand how much shoppers spend in your store on average. Use the following formula to get it:
total sales/total transactions
Why measure average transaction value?
With this metric, you can get a better idea of how much customers are spending in your store on average. A higher average transaction value (ATV) means that shoppers are buying your more expensive products or that they’re buying larger quantities.
From this metric, you can derive some insights and take action. For example, if your ATV per transaction is low, it’s an indicator for you to rethink your pricing or to implement other sales tactics like up-selling, cross-selling, or other sales techniques to get customers to spend more.
How to increase average transaction value?
Consider up-selling or cross-selling. With cross-selling, you sell customers offerings that complement or supplement the purchases they’ve already made. On the other hand, upselling occurs when you increase a customer’s value by encouraging them to purchase a more expensive model or product.
When done right, both tactics will enable you to increase your average transaction value while also making customers happier.
5. Gross and net profit
Gross profit is the amount of money you have left after deducting the cost of goods sold from revenue. It can be calculated using the following equation:
sales revenues – the cost of sold goods
Your net profit, on the other hand, reflects the amount of money you have left after having paid all your allowable business expenses — including administrative and operating costs. It can be calculated using the below formula:
all revenues – all expenses
Why measure gross and net profit?
Your gross and net profit values can reflect whether you’re actually gaining money or not. While generating sales and revenue is great, you need to be making money from those sales as well.
Measuring and tracking retail profit metrics and KPIs will help you make smarter data-based decisions in various aspects of your business. For example, if your gross profit is low, you may want to look into your product sourcing and decide on the way to lower your cost of goods. If your net profit is on the low side, you may look into finding ways to reduce your operating expenses.
How to improve gross and net profit?
There are several profit-increasing strategies that you may try for your business. Here are some quick ideas:
- Streamline operations to reduce expenses
- Increase prices
- Increase average order value
- Apply savvy purchasing practices
- Enhance vendor relationships
Customer Metrics & KPIs
Customer-centric metrics are another aspect that retailers need to look into when evaluating their business performance. Top metrics may include:
6. Visitor traffic
visitor traffic refers to the number of people walking into your store. You can measure this metric by using people counter sensors and retail analytics software.
Why measure visitor traffic?
Measuring visitor footfall traffic with people counting technologies helps you evaluate various aspects of your business, like marketing and advertising efforts, for example. Let’s say you recently launched a marketing campaign, like a window display promotion, to drive more people into your shop. Looking at your foot traffic numbers during the period of your promotion helps you determine whether or not your campaign was successful or not.
How to improve foot traffic?
There are various ways to drive foot traffic into your brick-and-mortar retail store, this includes:
- Improving your storefront appeal
- Leveraging digital tools like click and collect
- Organizing and holding events to attract customers
- Driving traffic from existing customers
7. Customer retention
You worked hard on your marketing and managed to get new customers. The next step would be to figure out whether or not you are keeping those customers.
To understand your customer retention rate, you will need to understand the following numbers:
CS = the number of customers at the start of the period
CN = the number of new customers acquired during the period
CE = the number of customers at the end of the period
You can then use the following formula:
((CE-CN)/CS)) x 100
Why measure customer retention rate?
With the customer retention rate metric, you can tell the number of your store’s returning customers. This can be an excellent way to gauge customer service, product performance, and customer loyalty.
How to improve customer retention?
Turning your visitors into loyal customers who keep coming back to your stores comes down to your customer experience and satisfaction. There are several ways to improve your customer relationships, some of which include:
- Offering a personalized customer experience
- Providing fantastic customer service and building meaningful relationships
- Implementing a loyalty program to encourage shoppers to keep coming back
Which KPIs should you consider?
To decide which KPIs to measure, you should consider which metrics are more relevant to your business. Your key performance indicators may change based on your current business goals and challenges. It is best to examine your retail practices, priorities, and objectives, then decide on your metrics from there.
Once you decide on the relevant metrics you wish to track on a consistent basis, you will want to Invest in a retail solution with robust reporting and analytics capabilities, so you can spend less time focusing on manual formulas and get straight to the insights you need.
The next step will be to take action. You will be able to use the power of your data to identify areas for improvement and then take the steps needed to level up your retail game consistently.