Retail KPIs: Where Should I Focus My Attention?

When it comes to the retail industry, there’s a number of retail KPIs you could be tracking. Ultimately, your biggest KPI has to be sales, right? After all, if you’re not making sales, you’re not going to be in business long. Even though sales are a key KPI, there’s a number of different retail metrics you should be tracking.

(1) Inventory Turnover Rate

In simple terms, this measures the rate at which a certain product is sold. Your inventory turnover rate calculated by measuring the costs of the goods sold and dividing that by the cost of the average amount of inventory on hand. For example, if your store sold $200 worth of tape and you have an average of $5 worth of tape on hand, your turnover rate would be 40 times per year.

You already know inventory management is key to every retail business. This KPI allows you to measure how often you should be ordering, optimizing your stock levels and orders of individual products on shelves. In the best scenario, you want similar products to have a similar stock turnover rate. If you have a multiple retail stores in different locations, this KPI can be measured against other stores. Detailed POS reports, like Accelerated Analytics’ reports, do the math for you so you can spend more time focused on the operations of your business.

How it can help: This biggest metric this helps with is identifying ideal par levels on your inventory. Being short-stocked and over-stocked are equally damaging to most businesses, getting it right is vital to your company.

(2) Year-Over-Year Sales

While you should always be focused on sales, year-over-year analytics is one of the more basic, but it’s an essential KPI you must track. Unfortunately, too many small businesses use this KPI alone. It is much more valuable when coupled with another KPI.

You can use year-over-year (YOY) to see numbers if your business is growing, stalling or you’re taking losses. While all that data is helpful, the key is understanding exactly why that happened. There’s a number of questions the data can suggest;

  • Which product(s) caused our YOY growth?
  • What changes took place to influence our YOY decline?
  • What’s changed YOY that has caused our growth to flatline?

This is why companies rely on our POS reports, it allows them insights to all the key retail KPIs so they can make the appropriate decisions at the right time.

How it can help: Year-over-year analysis are great to get a big picture idea of your business’s performance. You can also use other KPIs with your YOY data to analyze other areas affecting performance.

(3) Gross Margin Indicator

Most people think that gross profit is a more important measure of success versus other retail KPIs. While there’s some truth to it, gross profit is dependent on the size of the company. A major retailer’s gross profit might be 100 times greater than that of a local retail store but the boutique could be a much more successful operation.

Gross margin, however, is a more enlightening statistic. This KPI measures gross profit as a percent of gross sales. In other words, it takes the cost of goods sold “COGS” into account.

How it can help: It can be used to determine reasonable markup prices. Adding additional factors into the equation – locations, categories, times – it can also provide more insight into a business’s ideal strategy.

(4) Retail Sell-Through Rate

Your sell-through rate measures the ratio of the number of units sold in a given period and the initial on-hand inventory for the period. It provides the percentage of inventory of a specific product that was sold over a chosen time period.

Divide the total number of a certain item sold by the stock number you had on-hand at the beginning of a given period. Just multiply by 100 to turn the result into a percentage. For instance, if you have 400 items and sell 300, your sell-through rate is 75%. It’s important for you to decide a useful time frame to use when measuring this – this will vary between different business types.

Suggested for you  Ulta Backs Up Black Beauty Brand Voices With New MUSE Platform

How it can help: This retail KPI is key for seasonal ordering and marketing. It’s important to order accurately throughout the year and fluctuating sales can make this challenge. So, like most KPIs, it’s helpful to have a substantial history you can analyze to make appropriate decisions.

(5) Sales Per Square Foot

Some retail KPIs give you a perspective on the performance of your store layout, one being sales per square foot. First, this determines how efficient your precious space is being used. It’s essential to measure this before and after a retail redesign.

It also is an indicator of staff performance. If you have designated sections of your store and notice large discrepancies between various areas, it might be indicative of poor/great staff performance.

Larger retailers also compare this measurement across multiple locations in an attempt to identify any cultural or social differences that could impact sales. Your POS makes this process a lot easier, if you have the right solution in place.

How it can help: This can be a great indicator of store performance: retail layout/design, staff productivity, and multi-location sales/analysis.

(6) Customer Conversion Rates

Another common KPI for retailers is customer conversion rates. This measure is taken by dividing the total number of transactions by the total number of customers in your retail store. It can also help you determine the success of some in-store components of your business, such as;

  • Store layout
  • Store experience
  • Customer service

If you’re having trouble getting foot traffic to your store, improving your conversions is going to be a key KPI to focus on. It’s one of the most important retail KPIs you have and should be evaluated regularly.

Conversions rates also play a key role for those of you that have ecommerce stores in addition to brick and mortar retail store.

How it can help: Measuring conversion rates and identifying trends is 2 key factors for determining if you’re offering products that your customers want. This KPI gets at the very heart of what your goals should be as a retailer.

(7) Gross Margin Return on Investment

GMROI, gross margin return on investment, tells you how much your profit was based on the amount spent on inventory.

For example, if you sold $200,000 in product and your inventory cost was $100,000, your GMROI would be 2 (which means you’re earning $2 for every $1 invested in inventory). This KPI obtains information on both individual products and inventory as a whole.

When you get good at GMROI, it becomes easy to determine which products to promote and where to place them in your retail space.

How it can help: There are industry standards for GMROI, so this is simple and tangible way of hitting benchmarks. Look up what an optimal GMROI is for your retail niche and let it optimize your inventory and ordering.

Your POS Report Can Help With Your Retail KPIs

Advanced POS reporting, like Accelerated Analytics provides clients, helps retailers analyze important data, like these KPIs and many others. Through customer databases, detailed inventory tracking, smart reporting and more, your point of sale reporting solution must be much more than just numbers.

*Accelerated Analytics publishes resources like this to provide insights to different analytical metrics, data points and formulas. Please be aware, we’re not claiming that our POS reporting will offer this example or any other metric, data point or formula. To learn exactly what our reporting covers, please feel free to schedule a demo or give us a call. Thanks for understanding.