It is time for the third of our blogs looking at KPIs in specific industry sectors. We have already reviewed KPIs in the service and manufacturing sectors. This month we are going to have a look at what KPIs may be useful to track if you run a business in the retail sector.
When looking at retail KPIs it is worthwhile breaking them down into categories, based on what they provide insight into. We are going to use the following categories: sales, customers, stock, growth and transactions. These categories would be relevant no matter what retail model they are applied to, for example internet sales or a high street shop front, although some of the individual KPIs may not be relevant in some circumstances.
Sales per square foot – when you have a physical sales area, this provides a measure of the revenue generated by that area.
Sales per employee – tracking this can help you measure employee performance and make decisions around investing in staff.
Conversion rate – will help you understand how many visits to your shop or website result in actual sales.
Foot traffic – records how many people walk into a store, or how many website hits are recorded.
Customer retention – repeat customers are vital to the success of any business.
Customer satisfaction – this will have a direct correlation with both foot traffic and customer retention.
Stock turnover – shows how many times a certain level of stock is sold over a chosen period of time. Holding too much stock can be inefficient and costly, whereas not holding enough could result in the business losing revenue.
Gross margin return on investment – helps to evaluate how well your business is making use of its stocks and provides an indication of how profitable it is to invest in your stock.
Shrinkage – this gives a measure of how much stock is being lost to the business without being sold – for example through fraud or shoplifting.
Sell through – this will measure how many units are sold as a percentage of units that were available to be sold.
Year on year growth – this tracks revenue compared to the prior year.
Average transaction value – this indicates how much customers spend in a transaction on average.
Number of items per transaction/basket size – keeps track of the number of units sold per sales transaction.
What it means for the business
As always, which KPIs you choose to track will depend not only on your specific business but also on where you are in the lifecycle of your business and your specific goals.
If you think that it could be time for your business to take the next step and develop an easily understandable dashboard to monitor performance Artemis Clarke can help.
Employing the appropriate senior finance resource, either on a full time or part time basis, can help identify what really matters to your business, and ensure that this is appropriately measured and monitored.
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