For a long time, retail stores have been using pretty straightforward KPI metrics to measure their performance. The performance was usually measured in terms of physical transactions, including costs, margins, stock turnover, and like-for-like sales. Such KPI metrics typically omit the customer relationship side of the business or individual segment potential. At a time when the retail industry is highly competitive, they have to look at various facets of their operations to improve themselves and deliver superior results. So what are the top KPI metrics retail stores should focus on to improve their productivity?
Sale per square foot
Total sales/total surface area in sq.ft.
Real estate expenses are one of the most significant spend areas for retail stores. Retail stores usually pay out large sums of money for the lease, rent, or purchase of prime real estate locations. Thereby, it is crucial for them to generate maximum revenue from the available space. Sale per square foot is an essential retail KPI as it can benchmark performance of small retail stores against larger ones. Additionally, the metrics also tell a lot about the effectiveness of the store layout and the performance of the sales personnel.
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Average customer spend
Total sales/number of transactions
One of the most obvious goals of a retail store is to get customers to spend more. Average customer spend calculates the average amount customers are spending during each purchase. Average number of units per transaction (UPT) is another form of this KPI metrics. These metrics depend on the type of retail stores as customers’ spend will be higher in an electronics store, whereas UPT will be higher in grocery stores. Average customer spend can be helpful for retailers to segment their customers in order to plan their sales and marketing efforts accordingly.
Conversion rate
(total transactions/total shopper traffic) *100%
The conversion rate is a simple metrics which calculates how many visitors have been converted into a shopper. For data capturing purpose, sensors from the door counter can keep track of total number of visitors and number of transactions can be retrieved from the POS system. Analyzing conversion rates can provide insights into staffing requirements and promotional efficiency. Retailers can gauge their promotional campaigns based on the conversion rate. A low conversion rate usually signifies poor marketing effort or inadequate performance from sales associates.
Year over year (YoY) percentage change in sales
((sales for time period this year/sales for time period last year)-1) *100%
Financial goal or wealth maximization is the goal of every business in existence. The same holds true for retail stores as well, since retailers measure year over year percentage change in sales to assess the growth rate. However, retailers should be careful while using this KPI metrics for performance measurement as it does not take into account shopper behavior changes, economic fluctuations, or other external factors.
Sell through rate
Number of units sold (time period)/starting on-hand inventory for the period
Sell through rate is the ratio between the number of units sold in a particular period and the starting on-hand inventory for that period. This KPI metrics gives an overview of the amount of inventory a retail store is able to sell in a given period. A higher sell-through rate indicates better performance as the retailer is able to sell most of its stock and maintain an optimum level of inventory. Sell through rate becomes even more critical for seasonal merchandizes as retailers want to sell most of the stock before the season ends.
Year over year (YoY) percent change in shopper traffic by time period
((traffic for the time period this year/traffic for time period last year)-1) *100%
YoY change in shopper traffic provides an insight into the reasons why shopper traffic is fluctuating. For instance, a positive change in the local economy can steer shoppers towards the retail store. Additionally, it can also help retailers plan inventory and sales personnel to cater to the demand of the changing shopper traffic.
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