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.
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:
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.
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:
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.
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:
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:
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:
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:
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:
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:
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:
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:
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:
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:
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.
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:
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.
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.