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How To Measure Your Retail Business With KPIs

By November 28, 2016 No Comments
How To Measure Your Retail Business With KPIs

Tracking, measuring and analysing core aspects of your business with KPIs (Key Performance Indicators) will ensure you understand how your retail business is performing and where improvements can be made or investment is required.

As the retail environment is more challenging than it has ever been, understanding how your store is performing is vital business intelligence to have. Which aspects of your business to track, measure and analyse is an important first step to identify which KPIs will reveal where your store is doing well, but more importantly, where you need to make changes or investments.

Vend created a report about using KPIs and used the analogy of a car: “every car has a number of gauges on its dashboard, including the gas gauge, speedometer, temperature, etc. When you’re driving, you need to keep an eye on these devices in order to know if you’re moving at the correct speed, if your car is doing okay, or if you need to tweak anything under the hood. The same thing can be said about retail KPIs. These are numbers that you must regularly monitor so you can determine if your business is on the right track.”

No two retail business are identical, so you will need to look closely at which KPIs your store needs to reveal the data that will enable you to make changes and improve key aspects of your business. Your business is awash with data, so choosing a group of KPIs that are right for your business is vital.

Link the KPIs to your business planning. KPIs can measure the effectiveness of a new store layout, advertising campaign, or a change in your supply chain. Try and look at your store holistically and identify the information you need to make the changes you need to remain profitable over the long term.

For businesses in the retail sector there are a number of important core KPIs that all retailers should pay close attention to:

[1] Gross Margin

You are in business to make a profit, but do you know how much you are actually making on the goods you sell? Gross margin is expressed as:

Total Sales – Cost of Goods Sold ÷ Total Sales
The gross margin you are making doesn’t include your overheads such as salaries or the running costs of your store. However, you can use your gross margin KPI to see where you could make savings with your suppliers. The cheaper you can buy goods in the better your gross margin will be.

[2] Net Margin

After gross margin your store’s net margin is an essential KPI to know, as it does include your operating costs. These are your utilities, rent, wages and any other operating costs your store has. Net margin is expressed as:

Total Sales – Total Costs ÷ Total Sales

With so many different components to your net margin, this KPI can be highly useful to identify where your business could make savings. Could you switch to a different cheaper energy supplier? Is your rent up for renewal?

[3] Stock Turn

Choosing the right goods to sell in your store is vitally important. Your stock turn KPI will give you sight of which lines are selling, and which ones are still on your shelves. Stock turn is critical to your business, as it ensures good cashflow, as goods are selling. Stock lines that are not selling tie up your cash. Take care with this KPI to factor in any seasonal shifts in stock turn rates. Stock turn is expressed as:

Total Sales for the Year ÷ Average Monthly Inventory

[4] Gross Margin Return on Investment (GMROI)

Often KPIs will go together. GMROI together with your gross and net margin KPIs gives you a complete picture of how well – or not – your cashflow is performing. Cashflow in many situations is more important than profit; so understanding your store’s GMROI is critical to ensure good constant cashflow. GMROI is expressed as:

Total Sales – Cost of Goods ÷ Average Cost of Goods

[5] Average Transaction Value (ATV)

How much is spent by individual customers is a great KPI to know. Has the promotion you have running been successful? You can answer these questions with the ATV KPI. It enables you to see where improvements can be made to increase the overall basket value of your customers.

There are of course many other KPIs you could use to gain insights into how your store is performing. Look at all the available KPIs you could use and pick the ones most suitable to your type of store, and that gives you the information you need to ensure it remains profitable. Create a dashboard to gather all the KPI results into one place. You’ll then have a great overall view of how your store is performing .

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