5 Most Important Retail KPIs
Key performance indicators or KPIs are measurements of data used to track important processes, efficiency, company growth, customer engagement and many other patterns. Every industry has unique KPIs that inform business leaders of the direction their business is moving – positive or negative.
KPIs are best utilized to understand whether your business has attained specific goals related to an increase in profits, identification of consumer patterns or brand growth. In the retail industry, an example goal could be to increase daily revenue by 6% during the fall season.
This post describes 5 of the most important small business retail KPIs.
Retail Key Performance Indicators and Metrics
1. Sell-through Rate
Number of units sold / original inventory x 100
Sell-through is the rate or percentage of units sold compared to the number of units available to be sold. This is an effective measurement to help you understand how quickly a product has sold, and how often to re-order the item or which items you can promote over others.
2. Year-over-year Growth
(current period revenue – previous period revenue) / previous period revenue x 100
Year-over-year growth is a revenue-based measurement. It is one of the more basic KPIs, but provides more insight than a simple numbers comparison. A YOY rate increase looks great to start, but if you plot this over a number of months you may see trends or changing patterns. Cross-matched with sell-through rate, you can understand what might have led to those patterns. Winter clothing item revenue may be down at launch, while fall clothing items have sold consistently for a longer period due to weather patterns.
3. Gross Margin Return on Investment (GMROI)
Average Sales / Average Inventory Cost x Gross Margin
GMROI tells you how much profit you’ve made against what you’ve invested in inventory stock. There are industry standards for most niche markets, making this metric a tangible way to see if your store is hitting benchmarks. It also informs you on which items are giving you the most value and when products need to be switched out.
4. Conversion Rate
Total sales / total transactions
Simply put, conversion rate measures the percentage of people making purchases when they visit your store. Although a more general number, if the data is interpreted correctly you can understand what may be affecting customers decision to purchase. In a cluttered store, the customer might not easily find the items they need and decide to just leave and try somewhere else.
5. Sales per Square Foot
Net sales / amount of sales space
Some KPIs are better suited to help you understand how your store layout or staff affects sales. Sales per square foot details this well. Let’s say your clothing store just launched a winter line and you know customers are viewing the items but sales aren’t as high as you’d like. Tracking sales per square foot for the winter section could indicate a need to improve staff performance.
These 5 small business retail KPIs should form the foundation of your store performance analysis.
Small business owners often serve in more than one position for their business, leaving them with little time to properly track KPIs. Action Card can help you create retail audits to ensure product displays are always stocked, well designed and up to date. Request a free demo of our software if you’re ready to build a better data foundation for your retail business.