The 9 Most Important Metrics for Retail Industry KPIs

Michael Needham

KPIs, also known as key performance indicators, are essential for businesses as they help monitor performance. Therefore, evaluating them regularly is a must, as the data can help you ensure that your business is on the right track.

Mainly, KPIs are used to track sales, traffic, and retention rates. However, these metrics can also be used to measure the success of your marketing and advertising campaigns, allowing you to adjust them to improve performance. 

To help you out, we’ve gathered the top KPIs to track for the retail industry. 

1. Sales-per-square-foot

This metric compares your physical store’s sales to the location’s square footage. The size of the location is limited to the physical retail space and excludes storage space and fitting rooms. Sales-per-square-foot is measured by the following formula:

  • Net sales / Square foot = Sales-per-square-foot

The sales-per-square-foot will help you indicate whether you are using the space productively and efficiently. This is especially important when you have multiple locations in varying areas, with different products, and diverse demographics. 

Because having a retail location is expensive, this metric can provide useful insight into which locations are underperforming. As such, you can reference the data from the successful stores to determine if product changes, advertising, display, or personnel changes are needed. 

For instance, data has shown that products placed at eye level sell better than items located lower or higher on shelves. Moreover, point-of-sale merchandising can encourage lastminute purchases of smaller, less expensive items during checkout.

For reference, the average annual sales-per-square-foot is $336 for apparel, $325 for specialty retail items, and $510 for groceries. 

2. Year-over-year sales

We all want our businesses to grow. And a good metric to identify growth rate is your sales. This is done by comparing gross sales from previous months or years to the current period. This KPI can be calculated using this formula:

  • [(Current period‚Äôs sales - Previous period‚Äôs sales)] / Previous period‚Äôs sales) * 100 = Year-over-year sales

Ultimately, this KPI can help you determine whether your company maintains steady growth or falls behind. Additionally, if you have a fiveyear business plan, year-over-year sales data can help you quantifiably determine whether you are fulfilling your projections. 

However, keep in mind that if your numbers are diminishing, other factors may contribute to lower sales. As such, year-over-year sales metrics should be coupled with other KPIs, such as traffic rate or conversion rate, to accurately determine the causes of lower sales. 

One of the most common reasons is consumer buying behavior. For instance, if your retail location is suffering from lower sales, the problem may be that more customers are opting for online shopping. As Statista reports, 51% of consumers regularly shop online.

Therefore, KPIs regarding year-over-year sales, as well as foot and digital traffic, can help you determine why your sales have dropped. In turn, your company can shift gears to focus on building your online presence. 

3. Cost of goods sold (COGS)

In addition to monitoring overall sales, another important KPI metric includes measuring the cost of production. Net profit helps determine how profitable your company is after taking into account all expenses, such as manufacturing costs, operating expenses, and administrative expenditures. This metric can be calculated using this formula:

  • Total sales revenue - Total expenses = Cost of good sold

Although sales may be higher, your profit margins may be low, leading to diminishing returns. In other words, the cost of manufacturing your product could be too high, causing you to lose out on profit. 

If you find your company is not profitable, consider implementing the following strategies:

  • Reduce your manufacturing costs
  • Switch producers or manufacturers to get a better deal
  • Raise prices
  • Reduce sales and markdowns
  • Offer promotions that encourage customers to increase their order size and value¬†

4. Gross margin return on investment (GMROI)

Compared to COGS metrics, GMROI offers more specific insight into the profitability of just your inventory. As a result, this KPI helps you determine how much money you make on a specific product. GMROI is measured as such:

  • Gross profit / Average inventory cost = Gross margin return¬†

In turn, you can make the executive decision whether to continue producing a product or discontinue it. Most importantly, you’ll want to ensure that your GMROI margin is high as it indicates profitability. 

Some actionable ways to improve your GMROI include:

  • Increasing prices¬†
  • Lowering costs of goods and services by switching producers or manufacturers
  • Improving inventory turnover rate

5. Digital traffic

As previously mentioned, consumers’ shopping behaviors are changing, contributing to an uptick in online shopping. For example, 53% of customers preferred shopping online to avoid crowds. As a result, measuring digital traffic is another important KPI that yields insight into your company’s online presence. 

When measuring digital traffic, several factors are considered, including search engine optimization (SEO), online marketing and advertising campaigns, and your website’s user interface. Each of these factors contributes to how consumers find your company and the value of the traffic you obtain. 

To improve your digital efforts:

  • Create an online retail platform with an accessible user interface¬†
  • Ensure your website is optimized for mobile use¬†
  • Target keywords that are relevant to your industry
  • Monitor your Google My Business page to ensure the information is up to date¬†
  • Conduct market research and SEO for your online retail store¬†
  • Offer online promotions via email marketing

6. Foot traffic

Since digital traffic focuses on the online world, foot traffic concentrates more on the number of customers going to your physical shop. Several factors affect sales at physical locations, including displays, customer service, and sales. 

Often, foot traffic is measured against another important KPI: conversion rate. The conversion rate is determined by the following formula:

  • Number of sales / Number of visitors = Foot traffic

Both these metrics reveal the number of individuals entering your store and making a purchase. Ultimately, you want to aim for a high traffic volume and conversion rate as it indicates a large number of browsers become consumers.

If your physical location is suffering from low foot traffic or conversion rates, you may consider trying these strategies to improve it:

  • Update your marketing and advertising displays
  • Offer more promotions and sales¬†
  • Redecorate the store¬†
  • Provide your employees with customer service training

7. Customer retention and satisfaction

Many companies know that attracting new customers is more costly than retaining existing clients. For consistent growth, your business needs to ensure the customer service, products, services, and prices are encouraging return consumers. As such, measuring customer retention and satisfaction is another important KPI. 

To measure the effectiveness of your customer relations, your company can utilize the following formula to find your customer retention rate:

  • [(Total distinct customers at end of quarter) - (Total new distinct customers acquired during quarter)] / (Total distinct customers at start of quarter) * 100 = Customer retention and satisfaction

Improving customer relations can be done in various ways, and one of the best ways is to attend to their needs, especially their inquiries. One of the best ways is to have a team of receptionists who can offer:

  • Personalized recommendations
  • Develop relationships
  • Educate consumers¬†
  • Promote a loyalty program

8. Sell through

This KPI measures the number of items that have been sold vs. the amount that was available for sale. Through this measurement, your company can determine which products bring in the most revenue and others that should be limited or discontinued. 

The sell-through rate can be found using this formula:

  • Number of units sold / Number of total units available * 100 = Sell through

In addition to the insight your company is given about top-performing merchandise, the sell-through rate also helps your business make storage and warehousing decisions. It ensures adequate inventory is always available and slow-moving products are not overstocked. 

Should your company face a low sell-through rate, consider marking items down or offering sales promotions to clear underperforming items stock.

9. Shrinkage

This is likely one of the most crucial metrics you need to watch as it pertains to the loss of inventory or merchandise. Remember that shrinkage is not caused by sales but instead results from employee theft, system or inventory error, shoplifting, and supplier fraud.

Measuring this KPI ensures that your company is not losing out on profitable inventory and hemorrhaging money on production costs. To gauge whether your business is suffering from shrinkage, use the following formula:

  • Ending inventory value - Actual inventory value = Shrinkage

Installing security cameras in your shop and stockroom can help discourage shrinkage caused by shoplifting and theft. If it is caused by supplier fraud, consider breaking ties and forming relationships with more reliable manufacturers. Similarly, consider updating your inventory systems with better stock management software. 

Use these KPI metrics for your business’ success

KPIs help monitor business performance and operations from all angles, including customer service, sales, inventory, and marketing efforts. 

To counteract possible shortcomings, it is vital to measure these nine critical KPIs on a regular basis. Doing so can help your business spot points of weakness early on and implement strategies to improve performance.

Michael Needham

Michael Needham is Finturf’s Chief Content Officer. He is currently responsible for content operations, internal traffic strategy, and all other marketing initiatives.

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