You may feel intuitively that your business is succeeding or that it could be doing better, but the only way to get a holistic, accurate view of your business performance is by examining the data. Successful retail businesses track important key performance indicators (KPIs) that show whether the business is doing well and meeting its targets.
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8 Important Retail KPIs for Tracking your Business
What is a KPI?
A KPI in retail is a type of retail metric used to track performance and ascertain whether your retail business is on track to meet its objectives and succeed in its overall plan.
Retail business owners track KPIs to see the strengths and weaknesses of business operations. By identifying weaknesses, the business owner can make well-informed business decisions that aim to address those weaknesses.
Each business exists in its context, so not all retail KPIs will be relevant to your business.
8 Important Retail KPIs
It’s important to realise that KPIs don’t exist in a vacuum, and you won’t get an accurate picture of business health from looking at KPIs individually. You must view these KPIs as related and study them as a whole for the best insights.
1. Sales per square foot
Formula: Total net sales / Total square foot
If you have a physical shop space, sales per square foot is an important metric. It is a useful indicator of your store's productivity and provides information on the layout of your items, assessing how efficiently you're utilising the space you have.
Heat maps of your locations can help you comprehend these insights visually, and you can explore the data to learn why some products perform better than others. It may be because of the types of products or how you arrange the products throughout the retail space.
2. Conversion rate
Getting customers through the door or onto your website is one thing, converting those interested into paying customers is what will lead to growth. Tracking various conversation rates across the buyer’s journey is vital to your success as a retailer. Do many customers fall out of the sales funnel at a certain point? Are existing customers likely to become repeat customers? Which landing pages have higher/lower conversion rates. Answering these questions can inform further business decisions.
3. Gross and net profit
When you subtract the costs of producing and selling the goods, the amount left over is your gross profit. Use this formula to calculate gross profit:
Income from sales - Cost of goods sold = Gross Profit
Your net profit is the amount you made after deducting your cost of goods and all other business expenses, such as operating expenses and administrative charges. Use this equation to determine net profit:
All revenue - All outgoings = Net Profit
You may improve your company decisions in several areas by monitoring these KPIs. For instance, you might want to consider product sourcing and see if there's a method to reduce your cost of goods if your gross margin is on the low side.
Not making a sufficient net profit? Maybe you could look for ways to cut your operational costs.
4. Average transaction value
Formula = Total revenue / Total transactions
This KPI tells how much each customer spends on average in one transaction with your retail business.
This can indicate how customers are interacting with your products. If your average transaction value is low, perhaps you need to consider upselling higher-value products. If it's high, this could show your customers are buying products in high quantities or they are attracted to a particularly high-value product you sell.
5. Customer retention
Formula = (customers at end of period - number of new customers acquired / customers at start of period) x 100
Your customer retention rate indicates the percentage of consumers who return to your business. This statistic serves as a great barometer for brand loyalty, product performance, and customer service in keeping customers coming back to your business.
You can improve a low customer retention rate by managing your customer relationships better. Consider ways to offer a more personalised service, treat existing customers to exclusive deals, offer great content through a newsletter, or create an enticing loyalty program.
6. Foot traffic/digital traffic
Foot traffic refers to the number of people who walk into your physical retail space whereas digital traffic refers to the users who visit your website.
Both of these metrics allow you to assess the success of your marketing and branding efforts in bringing traffic to your business. They can be a good indication of brand awareness.
To improve foot traffic, consider paid local ads to raise awareness of your offering or hosting events at your place of business. To increase digital traffic, there are various marketing strategies, including SEO campaigns and paid advertising.
7. Inventory turnover / Stock turn
Formula: Total cost of inventory sold / Average inventory cost
Inventory turnover is a crucial metric for evaluating your ideal inventory levels. If your stock turn is too low, you are not clearing your inventory quickly enough and risk the danger of keeping slow-moving or dead stock on hand.
However, if you're selling out of a product too often, your stock turnover rate may be too high, which could indicate that you're not keeping enough inventory readily available. In this scenario, your clients are constantly dealing with out-of-stock messages and backorders.
Measuring your inventory turnover over time should allow you to prepare better for the future to avoid any inventory issues.
Also read: The secret behind Zara's retail success
8. Gross Margin Return on Investment
Formula: Gross profit / Average inventory
Gross Margin Return on Investment (GMROI) measures your profit return on the funds invested in stock. This KPI determines whether your stock is profitable. It's usually measured for particular goods or categories because it might help you decide whether products are worthwhile to stock in your store.
How QuickBooks Can Help
QuickBooks is a powerful accounting software that can help you track some of these KPIs all in one place.
There’s a range of sophisticated reporting available that provides you with simple, digestible insights into how your business is doing. These reports can help you track things such as your gross and net profits and your average transaction value.
In addition, QuickBooks inventory software auto-updates your inventory. This makes it easy to see what’s selling and what to reorder to avoid any inventory issues.
Having so much automation along with insights all in one place makes managing your business a breeze.
See how our services can work for your retail business with a free trial.
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