8 KPIs to Measure the Progress of your Retail Business

8 KPIs to Measure the Progress of your Retail Business

The goal is to turn data into information and information into insight.

Carly Fiorina, Former CEO, Hewlett Packard

As we stepped into 2021, we witnessed a paradigm shift in consumer preferences. Digital experiences have become the new norm and this is where the retailers globally realised power of data. Business owners, regardless of their business types, are increasingly adapting a data-driven colture to harness the power of its competitiveness and profitability. Combining the decision-making of companies, along with the right data and metrics is what drives success and disruptive innovation.

Retailers rely heavily on data and analyse the performance indicators of their store to measure the outcome. Hence, calculating the right retail store KPI becomes imperative for retailers.

Let us look into a few critical KPIs and how they can help retailers track their progress.

What are KPIs in retail?

A KPI or a Key Performance Indicator refers to the metrics to measure the retail store’s performances. As the name suggests, Retail KPIs help retailers monitor their progress, analyse sales, inventory, and customer behaviour.

How to use retail KPIs?

  1. 1. Conversion rate

    This is the most crucial KPI - not just for a retailer, but for any business owner, marketer or a business head to evaluate the success rate of their campaign/business/event.

    How to use it?

    Conversion Rate refers to the number of people coming into your store and turning successfully into buyers. It can be calculated by analysing the number of visitors by the number of individual purchases, multiplying the result by 100.

    Benefits of using it :

    This is one of the most important aspects of a retail business, as turning visitors into customers is paramount to your success rate. Understanding your conversion rate is one of the significant methods of enhancing sales at your store. To increase conversion rate, retailers must focus on connecting with the customers on a personal level, understanding their needs and offering them products based on the insights gained.

  2. 2. Sales per square foot

    This is yet another important KPI for retailers. This metric refers to the number of sales generated per square footage of sales space at the store.

    How to use it?

    It can be calculated by dividing the net sales by the amount of sales space.

    Benefits of using it

    Physical footfall is imperative for a brick and mortar store and hence, calculating sales per square foot provides deep insight to the retailer to improve their store productivity and stock layout. Optimising the prices and offering discounts are some of the finest ways to attract the right customers to the right products. An assortment of products is also a smarter way of engaging customers at every corner of your store. If one section of the store is witnessing higher sales than the other, it is because of the product arrangements.

  3. 3. Sales per employee/category

    This helps retailers understand how expensive it is to run their company by indicating their sales performances.

    How to use it?

    It can be calculated by measuring net sales divided by the number of employees.

    Benefits of using it :

    This helps retailers identify valuable sales data with reference to sales as per product category, sales per employee, average sales per transaction, and sales per shift of the day. It helps make better employment decisions and also planning the staff’s schedules.

  4. 4. Gross and net profit

    calculating gross and net profit indicates your benefit by selling priced products as a retailer.

    How to use it?

    It can be measured by subtracting the cost of goods sold from the sales revenue.

    Benefits of using it :

    The net profit indicates how much money you made after deducting the cost of goods and business expenses. It helps retailers track if the gross profit is on the low side or high side, according to which they can manage their product sourcing. One of the oldest ways in the books to improve your gross and net profit is by streamlining your logistics and supply chain operations to reduce your expenses. Optimising vendor relationships and tactically managing the product prices also help in reasonably increasing your net profit margin.

  5. 5. Online traffic and foot traffic

    Whether you have an e-commerce store or a brick-and-mortar store, this is an important KPI to track.

    How to use it?

    Digital traffic is measured with the help of a POS system which indicates how many shoppers are visiting your online store. Foot traffic is fundamentally measured by physically keeping a track of every customer walking into your store, or with the help of cameras, and then tally the sales.

    Benefits of using it

    With omni channel retailing on the rise, many retailers today have both online and offline platforms to connect, promote and advocate the customer’s sentiment. Hence, measuring both the foot traffic and digital traffic are important metrics to understand the overall performances. This analysis also helps retailers understand physical influences on e-commerce sales and how they can effectively strategise to bring more traffic on different channels.

  6. 6. Year on Year growth

    This calculates the percentage of growth during a period of one year.

    How to use it?

    It can be measured by calculating the current period revenue and subtracting that with prior period revenue, and then dividing that number with prior period revenue multiplying with 100.

    Benefits of using it

    Measuring this KPI gives you long term metrics of how the business is performing every year and what measures you can take to boost your sales. It lets you know whether your sales are declining as compared to the previous year or it is increasing. Based on the result, you can further boost your retail promotional activities.

  7. 7. Inventory turnover

    Also known as Stock Turn, it is yet another important inventory KPI for retailers.

    How to use it?

    Inventory turnover refers to the times in a particular period you are selling the inventory and replacing it. It can be calculated by measuring the cost of goods sold by the average inventory.

    Benefits of using it

    If your inventory turnover is low, it means you are not replenishing or selling your inventory faster. This, in turn, is a critical index to understand, optimise and manage your inventory seamlessly. Based on the result of this KPI, you can avoid overstocking products, remove dead stocks more often, and plan the merchandise accordingly.

    Shrinkage is another aspect of inventory KPI to keep a track of the loss of inventory without sales. It can be calculated by subtracting the physical counted inventory value from the analysed inventory value. This helps retailers keep a track of any theft-related activity at the store, clerical errors, shoplifting and transport damage.

  8. 8. Shopper dwell time

    This KPI refers to the number of people visiting your store and the duration of their visit.

    How to use it?

    It can be measured by analysing your customers physically and tracking how much time they are spending on a shelf.

    Benefits of using it

    This is an essential retail metric that helps retailers analyse how long a customer spends looking at a display or a product. This is particularly helpful when it comes to a brick-and-mortar store to track your customers’ preferences.

Define KPIs for your retail business model to reach your business objectives

The dilemma that every retailer faces is which KPIs to measure and use for their business. The answer lies in using those that are the most relevant for your business type. For example, a newly- opened retail store might not need to calculate Year on Year KPI.

Therefore, the key is to establish your own retail metrics for success. Adopting the right data that is going to be the most profitable to your business will help you further strengthen the promotional activities of your store and enhance its performance. Retailers should create individual business goals annually/quarterly/monthly and measure them against KPIs to evaluate success rate.

In order to identify and track the right retail KPIs, retailers need to invest in an advanced retail management POS. iRetail Suite comes with a robust framework of measuring the right analytics and insights, helping you track your sales report and optimising inventory with ease. Request for a demo now!

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