What are the top 9 KPIs in retail? Check it out here

It’s never been more important to use KPI in retail than it has lately. KPIs — also known as key performance indicators — are the most important metrics in your business. These are the numbers that you should monitor regularly to determine if your business is on the right track.

What metrics should you look at? It depends. In retail, every business is different, so specific measures may be more important to you than others.

To help guide you on the right path, in this article, we bring you 9 of the main retail KPIs for you to follow in your business. Keep reading!

1. Customer conversion rate#

Your customer conversion rate is one of the most critical KPIs on this list. This metric deals with the number of visitors your business converts into customers. You can calculate your company’s conversion rate by dividing the number of visitors by the number of sales.

Its conversion rate allows you to evaluate the performance of your physical and online stores, as well as the ability of your employees and yours to make the sale. Understanding how many of your customers are converting can help you identify areas for improvement, whether it’s new retention strategies, new inventory items, or a new POS to improve service.

• Discover 6 retail marketing indicators!
• Marketing campaign: what are the main problems and how to solve them?
• 5 essential performance indicators for marketing management

2. Retaining customers#

The percentage of customers your business retained during a controlled period is your customer retention rate. This is also a critical KPI, and when used in conjunction with the turnover rate (number of customers lost in a given period), it can indicate which strategies work for your business.

For example, if you decided to accept credit card payments, you will probably find that this improves customer retention, elevating your experience at your store.

To calculate the customer retention rate, you’ll need to know three numbers:

• CE = customers at the end of the period;
• CN = new customers acquired during the period;
• CS = customers at the beginning of the period.

You will find your retention rate by doing the following calculation: retention rate = ((CE-CN) /CS)) *100.

3. Medium ticket#

The average transaction ticket metric allows you to examine how much the average customer spends at your store in one visit. You can easily calculate the average purchase amount by dividing the total amount of your sales by the number of transactions in the specified period. The number also shows where you can upsell to increase the average transaction amount.

This KPI allows retailers to find strategies to increase sales and, consequently, business profitability. In addition, it indicates the store’s success against the competition and the market.

4. Return on gross margin on investment#

The return on gross margin on investment - from English, Gross Margin Return on Inventory, or GMROI - allows us to measure the return on profit from investing in stocks. Simply put, how much do you get when you put 1 real in stock? You can calculate this by dividing the gross margin by the average inventory cost.

GMROI is an excellent metric for determining stock performance. Along with the sales metrics by distributors, you can determine the best-selling products with the highest profit margin and find the sweet spot in the middle. Use this understanding of your inventory to learn which products should be used in your marketing and sales efforts to maximize your return.

5. Total sales volume#

That’s a pretty straightforward example of a retail KPI. It measures the amount of sales made over a period of time or at locations that include physical stores and online transactions. That way, you can see where and when demand is higher or lower and try to understand why.

It also helps you assess the dynamics of your business and create projections for the future. In addition, comparing it between stores in the same time periods allows you to customize products or services appropriately for those locations, in addition to carrying out A-B tests.

Monitor and forecast your total sales volume in detail to identify underperforming areas of your business or product categories from the start.

6. Year-on-year growth#

Year-over-year growth is an essential metric that shows how your business is performing from one year to the next. The comparison is typically for a period of one month or quarter, which is compared to the same month or period of the previous year.

You can calculate year-over-year growth by subtracting the total for the period of the previous year from the total for the period of the current year. Year-over-year growth isn’t just a way to see potential for improvement, it’s also a great metric to reveal your success as a company, as you watch the numbers grow!

• Retail marketing trends: see 6 tips for 2020 and coming years!
• Learn now how to optimize the management of digital publications for retail

7. Inventory turnover#

Inventory turnover shows how many times your company sold and replaced its inventory during the controlled period. This KPI can help you make better choices for manufacturing, marketing, pricing, and managing your orders. You can calculate the inventory turnover rate by dividing your sales by the average inventory.

To calculate your inventory turnover, simply divide the total number of sales in a given period by the average inventory volume. If the value found is below 1, it means that at the end of the established period there were goods left in stock. If the result is higher than 1, it means that your store sold all the merchandise and requires replacement.

8. Profitability#

Your profitability — or net profit margin — is the amount of income you have after paying all your expenses. In other words, it shows how profitable your store is. That’s why your profit margin is one of the most important measures of retail performance and one of the most useful KPIs for tracking your company’s financial health.

If your profit margin is increasing, it’s a great sign that you’re choosing inventory and attracting customers effectively. But what happens if your profit margin KPI starts to decrease? When that happens, you can compare this KPI with other sales metrics to get to the root of the problem — starting with your gross margin and operating margin, which are two ancillary metrics to profitability:

• gross margin: this metric tells you how your selling costs are affecting your profit. To calculate, use this equation: (sales revenue - cost of selling your products) /sales revenue;
• operating margin: this margin indicates how much profit you make per real on sales you make. To calculate operating margin, divide your operating profit by your net sales.

When your profit margin drops, it’s usually due to a change in one of these two metrics. Imagine that your profitability KPI has decreased. When you look at your gross margin, it’s similar to previous months. However, its operating margin declined considerably. This may indicate that your store has assumed higher overhead expenses. To fix the problem, you can analyze your expenses and try to find areas to reduce costs.

9. Profitability#

Finally, the final test for your financial check-up is to know the profitability of your sales channel, which is the focus of these two final KPIs. While it’s good to know your gross profit per sales channel (according to our last tip), the sales channel’s net profit is a fuller picture of the true profitability of that channel.

This is because net income incorporates other direct expenses from that sales channel that gross profit does not include.

• How to reduce marketing costs? Check out our 4 strategies
• Why is the optimization of production processes essential for the company?
• What are the main benefits of the marketing management system?

The most successful companies use KPIs in some way to help them measure business success. As a manager, you must work to implement KPIs in your business strategy. Doing so can help you evaluate your progress and set new goals. There are several types of KPIs in retail, and the opportunities to define them are endless. Starting with the 9 we provide, it’s an excellent way to get your business on the right track.

Need help tracking your store data or finding information for your KPIs? Using a platform like Wikimee, this can be less complex. Contact us and request a demo!