Numbers don’t lie, so if you find yourself at a loss with what’s happening in your business, one of first the things you should do is look at your retail metrics and KPIs.
Go through your sales, inventory, and customer data to see if you can figure out how you can improve.
What are KPIs in retail?
KPIs — aka “key performance indicators” are the most important metrics in your business. These are numbers that you must regularly monitor so you can determine if your business is on the right track.
What metrics should you look at? That depends. Each retail business is different, so specific measures may be more significant to you than others.
But to help point you in the right direction, we’ve compiled the top retail metrics and KPIs to track in your business, along with the formulas and methods to calculate them.
How to use retail KPIs
Generally speaking, KPIs are used to determine if you’re meeting your goals. They’re called key performance indicators for reason: they help you gauge your performance, so you can decide on the right course of action.
Depending on what you’re measuring, KPIs help you see where you’re at in terms of sales, inventory movement, growth, customer satisfaction etc. In the points below, we’ll dive into the specific KPIs you should be looking at how to use them.
Note: In the following paragraphs, you’ll see a quick description of each retail metric and the forumula to calculate it. And while we think this is a great starting point to understanding what to track in your retail biz, we’d be remiss if we didn’t mention retail analytics and reporting.
You should certainly know how to calculate various metrics and KPIs, but in real-world applications (particularly if you’re running a fully-fledged retail business), it’s best to use a retail software solution that crunches the numbers for you. Doing so will save you time and help you gain the insights you need much faster.
With that said, let’s dive into the metrics!
Sales metrics and KPIs
Sales are the lifeblood of any retail business, so it’s critical that you keep a close eye on them. Consider the following KPIs:
1. Sales per square foot
This metric pertains to the amount of sales you generate per square footage of sales space in your store. (Note: this doesn’t include fitting rooms or stockrooms.)
You can calculate your sales per square foot using the following formula:
net sales / amount of sales space
Why measure your sales per square foot?
Retail sales per square foot is a good indicator of store productivity, and it can also tell you if you’re making good use of space and fixtures in your shop. You can use this metric when planning your store layout and merchandise.
Certain stores and industries make their sales per square foot public, which means knowing this metric will help you determine how your business compares with others. Here’s a look at the average sales per square footage in different retail sectors:
- Apparel – $336
- Specialty retail – $325
- Grocery – $510
How do you improve your sales per square foot?
The right sales and retail productivity tactics will depend on your store, but here some general tips for improving your sales per square footage:
- Improve your store layout
- Have a winning product assortment
- Optimize your prices or promotions
- Increase transaction or basket value
- Train your staff to sell more
- Encourage people to stay longer in your shop
2. Sales per employee
Sales per employee is a measure that comes in handy when you’re planning your staff’s schedules and initiatives. You can easily measure it using this equation:
net sales / number of employees
Why measure retail sales per employee?
This metric can help you make smarter employment decisions, particularly when it comes to hiring, rostering, and compensation.
If you want to get more profound insights into your revenue and staffing, go beyond the formula above and measure the revenue generated by individual employees. The easiest way to do this is through your point of sale system. Find a POS solution that tracks sales per employee, and use that data to come up with sales targets and determine who best associates are.
How do you improve your sales per employee?
The best way to improve on this metric is to get your associates to generate more sales. Depending on your store, this may include actions like:
- Setting smart sales goals per employee
- Investing in sales training
- Motivating your staff to perform better
Related: Want more specific tips? Check out our post on meeting and beating your retail sales targets.
3. Conversion rate
The conversionn rate is the proportion of store visits to the number of shoppers who made a purchase. To calculate it, use the formula:
number of sales / total number of visitors
Why measure your retail conversion rate?
Your conversion rate tells you how good you are at turning lookers into buyers. Driving store visits is great, but traffic alone won’t add much to your bottom line if your visitors don’t convert.
How do you improve your conversion rate?
Increasing your conversion rate starts with your employees. Be sure to train and empower your associates to:
- Build rapport with customers
- Become “likable experts” who can provide product information and insights
- Be convincing without being pushy
4-5. Gross and net profit
Your gross profit tells you how much you made after deducting the costs of creating and selling the product. Calculate it using the formula:
sales revenues – cost of goods sold
Your net profit tells you how much you made after deducting your cost of goods along with all other business expenses — including administrative costs, operating expenses, etc. To find it, use the equation:
all revenues – all expenses
Why measure gross and net profit?
Your gross and net profit will indicate whether or not you’re actually putting money in your pocket. Generating sales and revenue is good, but at the end of the day, you need to make money out of those sales.
Tracking these KPIs will help you make smarter decisions in various aspects of your business. For instance, if your gross profit is on the low side, then you may want to look into product sourcing and determine if there’s a way to lower your cost of goods.
Not netting enough profit? Perhaps you should find ways to lower your operating expenses.
How do you improve your gross and net profit?
You can try several profit-increasing strategies in your business. Here are some quick ideas:
- Streamline your operations to reduce expenses
- Raise your prices
- Increase your average order value
- Implement savvier purchasing practices
- Optimize your vendor relationships
6. Average transaction value
This metric tells you how much shoppers spend on your store on average. To find it, use the formula:
total revenue / number of transactions
Why measure your average transaction value?
This metric gives you a general idea of how much people are spending. A high dollar amount could mean that shoppers are purchasing your more expensive products or they’re buying larger quantities.
You could derive some insights and action steps from this KPI. For instance, having a low average dollar per transaction could indicate that you need to rethink your pricing. Or, it could mean that you have to implement new sales tactics such as upsells, bundles, or other offers to get shoppers to spend more.
How to increase your average order value
Look into upselling or cross-selling. Done right, both tactics enable you to increase sales while helping customers at the same time.
The key to upselling or cross-selling success is doing it correctly and at the right time and place. If you upsell a product that’s irrelevant or if you’re selling in such a way that you’re coming off as pushy, then you’ll not only fail to convert the customer, but you might even lose the original sale.
The #1 rule here is to always provide value. Yes, getting someone to upgrade their purchase or to buy an additional item will benefit you, but the deal must also be advantageous to the customer.
7. Online sales relative to brick-and-mortar locations
This is new metric that benefits omnichannel retailers — i.e., retailers that are selling online and offline.
To measure it, you need to look at your ecommerce analytics and see how much traffic or revenues are generated from locations where you have a brick-and-mortar presence.
For example, let’s say you just opened a new store in Austin, TX. You can measure the impact of your store on ecommerce by looking at web traffic and sales from users in relevant zip codes (i.e., zip codes in Austin and surrounding areas.)
Why measure the impact of physical retail on digital?
Consumers today are increasingly using multiple channels to shop, so you need to get a handle on how your physical presence influences your ecommerce sales. These days, crediting sales to a single channel isn’t enough, when people are interacting with your brand in many different ways and places.
8. Year over year growth
If your business growing? How better off are you compared to your previous years in business? To figure this out, calculate your year over year revenue growth with the following equation:
(current period revenue – prior period revenue) / prior period revenue x 100
Why measure YOY growth?
Continuous improvement is a goal you want to strive for, and the best way to track your progress is to measure your current results against the previous period. This will help you track how your business doing so you can react accordingly.
For example, if you find that you’re falling behind and your business isn’t performing as well as the previous year, then you can strive to change that.
How to improve your YOY growth
The first step to improving this is to figure out why you’re not growing at your ideal rate. If your growth has stalled, then drill down on the reason behind it. Is it the market? Are you failing to keep up with the latest trends? Is a competitor eating up market share?
Whatever the case, figure out the reason and then take the necessary steps to improve.
Inventory metrics and KPIs
Getting your inventory levels “just right” is a tricky task, but it’s completely doable with the help of the metrics below.
9. Stock turn
Also known as inventory turnover, this metric pertains to the number of times stock is sold through or used in a given time period. Calculate it using the formula:
cost of goods sold / average inventory
Why measure stock turn?
Stock turn is a critical metric for determining your optimal inventory levels. If your stock turn is too low, then it means you’re not selling out of inventory fast enough, and you risk carrying slow or dead stock.
However, if your stock turn is too fast (i.e., you’re selling out of the product 4 or more times a year), then it could mean that you’re not stocking up enough, and customers are continually dealing with out of stocks.
How to improve stock turn
It all depends. If your inventory turnover is too low, you need to be leaner with your merchandise and avoid over-ordering products. You should also make it a goal to move your slow-moving or dead merchandise ASAP. Here are some posts to help you do just that:
Dealing with high stock turn? Optimize your stock ordering procedures to ensure that you’re not running out of inventory too frequently.
Gross Margin Return on Investment (GMROI) measures your profit return on the funds invested in stock. It answers the question, “For every dollar invested in inventory, how many dollars did I get back?”
The formula for GMROI is:
gross profit / average inventory
Why measure GMROI?
GMROI tells you how much money your inventory has made. You use this metric to figure out if your stock is turning a profit. It’s typically measured for specific products or categories because it can give you a good idea of which types of merchandise are worth carrying in your shop.
How to improve your GMROI
To increase your GMROI, ask yourself, how can I get more money out of my merchandise? Accomplishing that can mean:
- Increasing your prices
- Lowering your cost of goods
- Improving profit margins
- Improving inventory turnover
Sell through is the percentage of units sold versus the number of units that were available to be sold. It’s expressed in percentage form using the formula:
number of units sold / beginning inventory x 100
Why measure sell-through?
Sell through is a great way to evaluate merchandise performance. It also helps you figure out the speed at which a product is selling so you can make the right purchasing decisions.
For example, let’s say you’ve stocked up on a new style of shoes and saw that you’ve sold through 80% of your inventory in just a week — which is unusually fast for your shop. You can use that insight to figure out how much to order so you don’t run out prematurely.
How to improve sell-through
The steps required to strengthen sell-through depends on your situation. A high sell-through rate could mean that you need to stock up on merchandise (unless of course, you’re deliberately trying to sell out of the item).
On the other hand, a slow sell-through rate means the item isn’t moving fast enough, and you need to figure out how to sell more. Should you run a promotion? Mark it down? Again, the right answer depends on your store’s situation.
Shrinkage pertains to a loss of inventory that isn’t caused by actual sales. The common causes of shrinkage are employee theft, shoplifting, administrative errors, and supplier fraud. To calculate it, use the formula:
ending inventory value – physically counted inventory value
Why measure shrinkage?
The last thing you want is to lose product or money to things like theft or admin errors. Tracking shrinkage keeps you vigilant and helps ensure that nothing shady is going on in your business.
How to reduce shrinkage
The right way to deal with shrinkage depends on what’s causing it. If it’s consumer theft, then you need to work on beefing up store security. Dealing with employee theft? Work on hiring the people and setting up procedures to prevent inside jobs from happening. Tightening up your processes also works for admin errors and vendor fraud.
Vend’s Excel inventory and sales template helps you stay on top of your inventory and sales by putting vital retail data at your fingertips.
We compiled some of the most important metrics that you should track in your retail business, and put them into easy-to-use spreadsheets that automatically calculate metrics such as GMROI, conversion rate, stock turn, margins, and more.Learn More
In this section, we discuss some of the top customer-centric metrics to look at:
13. Foot traffic
This one is pretty straightforward. Foot traffic refers to the number of people who walk into your store. You can measure it using people counters and retail analytics software.
Why measure foot traffic?
Foot traffic helps you evaluate your marketing and advertising efforts. For example, if you recently launched a promotion to drive people to your shop, then looking at your foot traffic can tell you whether or not your campaign was successful.
This is also a significant metric for evaluating the success of your window displays.
How to improve foot traffic
There are various ways to drive traffic to your brick and mortar store. Some of our favorites include:
- Increasing your curb appeal
- Leveraging digital tools such as click and collect, online business listings, Google’s Local Inventory Ads, etc.
- Holding events
- Driving traffic from existing customers
14. Customer retention
You’ve worked hard to get new customers, so it’s only right that you figure out whether or not you’re keeping them. There are a number of ways to find your customer retention rate, but here’s a relatively simple formula from Inc.com:
((CE-CN)/CS)) x 100
CE = number of customers at the end of period
CN = number of new customers acquired during period
CS = number of customers at start of period
Why measure customer retention?
Your customer retention rate tells you the amount of customers that return to your store. This metric is an excellent gauge for customer service, product performance, and loyalty.
How to improve customer retention
Getting people to come back boils down to how well you manage your customer relationships. Doing that can mean various things including:
- Tracking customer purchases and offering personalized recommendations
- Developing meaningful relationships through amazing customer service as well as community-building efforts like classes, events, or online groups
- Implementing a killer loyalty program to encourage shoppers to keep coming back
Want more information on critical metrics? Download Vend’s Retail KPIs guide, a resource that gives you a deep look at the numbers you should be tracking in your business.
Download the guide and you will:
- Learn which metrics can help you make smarter forecasts and decisions
- Discover the formulas that’ll help you identify your KPIs so you can start measuring your way to the top
- Wise up on the metrics that you need to track, and know exactly when and how to measure them
How to decide which KPIs to consider
So, which of the above KPIs should you measure? To figure this out, consider which metrics are relevant to your business.
A KPI like year over year growth, for example, is a good thing to track if you’re established business, but it isn’t relevant if you’re a brand new retailer. Meanwhile, the metric sales per employee is good if you have a large team, but it won’t apply to your business if you’re the only one manning the store.
Another thing to consider is your focus and priorities. Your key performance indicators may shift depending on your current business objectives or the challenges that you’re facing.
Let’s say you’re currently dealing with issues around inventory discrepancies. If this the case, then shrink would be a good metric to track. Or maybe you’re looking to motivate your team to perform better. If this is your goal, then sales per employee is something to monitor more closely.
The point is, the right KPIs in retail will vary depending on your business. One retailer’s key metrics aren’t the same for others, so examine your practices, priorities, and goals, then decide on your KPIs from there.
Whatever the case, figure out who to efficiently measure these on a regular basis. Formulas are useful, but you’ll save time by automating data and metric-tracking in your business.
Invest in a retail solution with robust reporting and analytics capabilities, so you can focus less on manual calculations and get straight to the insights you need.
Next is to take action. It’s not enough to know your metrics; you need to do something with your data. Use the info that you gain to identify areas for improvement, and then take the necessary steps to level up your game.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.