While you might think that only sales are the indicator of a top-performing store, there are various KPIs and metrics that can shed some light on the progress of your business. In this article, we are going to show you 10 of the most important retail metrics and KPIs that you should be tracking and analyzing.
Before we get started, let’s do a small recap about metrics and KPIs in retail.
What are retail metrics and KPIs?
Retail metrics and KPIs (key performance indicators) are measurements used to show the performance and efficiency of various retail operations. As their name said, they are indicators of the success or failure of a retail business. Of course, these metrics shouldn’t be taken out of context and they should always be compared against benchmarks to make sure that you are on the right track.
As we’ve mentioned, there are various metrics, and here's a breakdown:
Sales Metrics:
- Sales Revenue: Total revenue generated from sales.
- Sales Growth: Percentage increase or decrease in sales over a specified period.
- Sales per Store/Location: Revenue generated by individual stores or locations.
- Average Transaction Value (ATV): Average amount spent per customer transaction.
Customer Metrics:
- Customer Acquisition Cost (CAC): The cost to acquire each new customer.
- Customer Lifetime Value (CLV): Predicted net profit from a customer throughout their relationship with the retailer.
- Customer Retention Rate: Percentage of customers retained over a given period.
- Customer Churn Rate: Percentage of customers lost over a given period.
Inventory and Supply Chain Metrics:
- Inventory Turnover: How quickly inventory is sold and replenished.
- Stock-to-Sales Ratio: Ratio of inventory on hand to sales.
- Fill Rate: Percentage of customer orders filled completely on the first shipment.
- On-time Delivery: Percentage of orders delivered to customers on time.
Operational Metrics:
- Gross Margin: The difference between sales revenue and the cost of goods sold.
- Return on Investment (ROI): The return or profit generated from investments made in the business.
- Shrinkage: Loss of inventory due to theft, damage, or administrative errors.
- Employee Productivity: Measures the efficiency and output of employees.
Marketing Metrics:
- Customer Traffic: Number of customers visiting a store or website.
- Conversion Rate: Percentage of visitors who make a purchase.
- Marketing Return on Investment (MROI): The return on investment from marketing efforts.
- Average Order Value (AOV): Average value of each customer order.
In the section below we are going to focus on 10 of the most important KPIs and metrics that you need to track to have a full overview of the performance of your store. Before we deep dive into the topic, let’s take a look at why tracking these KPIs is important for your business.
Why is it important to monitor and analyze retail KPIs?
There are a lot of reasons why you should be tracking these metrics (if you aren’t already). First off, they will show you how well various retail operations and campaigns are performing, allowing you to make changes and improvements.
Also, tracking and analyzing these metrics will allow you to get an overview of your whole store's performance. You can see if you are improving month after month or year after year. Also, tracking retail KPIs provides invaluable customer insights that you can use to improve the shopping experience.
Now that we know how important monitoring these metrics is, let’s see which are the most essential KPIs and metrics you need to include in your reports.
10 retail metrics and KPIs you need to analyze for your store
Sales Revenue
This is the total revenue generated by the store and is a fundamental metric for assessing performance. Of course, this metric is essential and it helps you understand how appealing your products are to your customers. Also, measuring this monthly and yearly will show you if your business is growing.
You don’t need any specific formula. It is the total revenue generated by the store in a period of time.
If you want to increase sales revenue, you need to focus on cross-selling and upselling. We’ve also published an article where we included pieces of advice from retail experts on how to increase sales in grocery stores.
Sales per Square Foot
This is a metric that measures the amount of revenue generated per square foot of selling space and helps evaluate space utilization and store productivity. By measuring this you will know if you are taking advantage of the whole space of your store.
This is the formula you need to use to calculate this metric:
Sales per Square Foot = Total Sales Revenue / Total Square Footage of Selling Space
To increase sales per square foot you might want to improve the layout of your store and optimize product assortment.
Conversion Rate
This metric calculates the percentage of store visitors who make a purchase, reflecting the effectiveness of sales and marketing strategies.
To calculate the conversion rate for your store, use this formula:
Conversion Rate = (Number of Store Visitors Making a Purchase / Total Number of Store Visitors) x 100
To increase the conversion rate, you can try to implement more engaging in-store advertising campaigns. For this, you can use a solution like Tokinomo Shelfobot or Visibubble.
Average Transaction Value (ATV)
ATV measures the average amount spent by customers per transaction, helping track changes in customer spending habits. Measuring ATV helps you understand the average amount of money generated from each customer transaction. Also, this shows the effectiveness of your pricing strategy and highlights opportunities for increasing revenue.
To calculate ATV you can use this formula:
ATV = Total Sales Revenue / Total Number of Transactions
Some of the most effective ways to increase the Average transaction value include:
- Loyalty programs
- Bundle offers and packages
- Cross-selling and upselling
- Volume discounts
Gross Margin
Gross margin is the difference between sales revenue and the cost of goods sold. It shows the profitability of products sold and helps identify pricing and cost issues.
Measuring gross margin is important for retail businesses because it provides valuable insights into their financial performance and helps in making informed decisions.
This is the formula for calculating this metric:
Gross Margin = (Sales Revenue - Cost of Goods Sold) / Sales Revenue
Want to increase gross margin? Here are a few tactics that can help:
- Reviewing and optimizing pricing
- Reducing Cost of Goods Sold (COGS)
- Enhancing operational efficiency
- Implementing cost control measures
- Product mix and portfolio analysis
Customer Satisfaction (CSAT)
CSAT measures customer satisfaction through surveys or feedback and helps highlight the overall customer experience. This metric needs to be on your tracking list because it allows you to understand how your shoppers feel about the services and products you provide.
CSAT is typically measured using surveys or feedback. The specific formula may vary depending on the survey rating scale or methodology used.
One of the most common ways to measure CSAT is the 5-point scale. Tell customers to rate their customer experience from 1 to 5. To calculate the CSAT in this scenario, you will need to add the number of people who responded with 4 and 5 and divide by the total number of answers. For example, if 70 out of 100 responders gave the experience 4 or 5 stars, then your CSAT is 70. However, for customers that responded 1,2, or 3, you can come with follow-up questions on how to improve their experience. Their feedback will allow you to see where are the areas that need improvement and how you can make the shopping experience better.
Foot Traffic
Foot traffic measures the number of people who visit the store, providing insights into the effectiveness of marketing campaigns and store location. Measuring foot traffic is a critical aspect of retail analysis and plays a significant role in understanding and optimizing a store's performance.
Foot Traffic can be measured using various methods such as people counters, video analysis, or POS data. The specific formula depends on the method used.
Looking for a way to measure foot traffic while also receiving insights about shopper behavior, dwell time, engagement, and shopper flow? Shopperscan, the revolutionary AI-powered data analytics platform is the perfect solution for you.
Shrinkage
Shrinkage is the loss of inventory due to theft, damage, or administrative errors. Monitoring shrinkage helps identify security and operational issues. Considering that in the last two years, retail theft has increased, retailers need to keep a watchful eye on shrinkage.
To calculate shrinkage, you can use the following formula:
Shrinkage = (Recorded Inventory Level - Actual Physical Inventory Count) / Recorded Inventory Level
To reduce shrinkage, you can provide training and awareness for your employees on how to handle and prevent theft and other retail crimes. Also, implementing robust security measures like investing in alarm systems and surveillance cameras will discourage many people from attempting to steal.
Inventory Turnover
This metric evaluates how quickly inventory is sold and replenished, providing insights into inventory management and cash flow. Tracking inventory turnover helps businesses optimize inventory levels, identify slow-moving or obsolete inventory, improve sales forecasting, assess product performance, optimize the supply chain, and support financial analysis.
To calculate inventory turnover you can use this formula:
Inventory Turnover = Cost of Goods Sold / Average Inventory Value
Want to increase inventory turnover? Here are a few tactics that can help:
- Demand forecasting and planning
- Just-in-Time (JIT) inventory management
- Efficient supply chain management
- Product assortment and SKU rationalization
Employee Productivity
Employee productivity helps assess workforce efficiency and staffing needs. There are two metrics that can show you the productivity of your workforce. Depending on what you wish to analyze you can calculate sales per employee or sales per labor hour.
Here are the formulas for both of these metrics:
Sales per Employee = Total Sales Revenue / Number of Employees
Sales per Labor Hour = Total Sales Revenue / Total Labor Hours Worked
The first will show you how productive each employee is in a period of time. Sales per Labor hour will showcase the productivity of your whole workforce.
If you want to increase employee productivity you can:
- Provide regular training for employees
- Offer benefits and incentives such as performance bonuses
- Encourage work-life balance
- Make sure your employees have a positive work environment
Keep an eye on the performance of your store
Numbers don’t lie, but you need to know how to collect data and compare it against benchmarks. Tracking and analyzing these metrics and KPIs will allow you to have a complete overview of the performance of your business and current growth opportunities.
