5 Essential Metrics
Stop now! Or at least postpone it.
Consider focusing on just 5 essential retail sales metrics, before your head is buried in Excel pivot tables along with your Qlikview display overcrowds and freezes. For all an all, it is the real time overview you require. The best way to glory is maintaining real-life events running smoothly in real time, and adjusting your plan after certain intervals.
1. Number of Customers (Customer Traffic)
Lots of clients are the most straightforward metric for your retail business. Even a kid gets the place that is crowding with clients must do good. You normally do not go into an empty restaurant, do not you?
Customers are the only source of cash for your retail business. Since Karl Marx had it, human labour adds real value to capital and land. For a retailer, the more potential customers you get into your shop, the more money they will likely leave behind.
If you are in e-commerce, measuring client numbers is rather straightforward. It will, however, take some expertise in studying the analytics. Most probably you’re going to be using Google Analytics, but remember your e-commerce backend has at least some visitor numbers. Even if these aren’t as fancy as Google supplies, they are usually easy to read and may even be more precise. Establish your benchmarks, compare results to last year and yesterday.
In the brick-and-mortar, look closely at the amount of visitors and the amount of customers. The latter can be viewed from your point of sale history. Use loyalty programs, so your clients identify themselves at the counter, then it is a lot easier to understand if your retail traffic. Wait! Do you come to your retail shops in person? Visual estimation can be adequate . Estimate, before you begin counting.
NB! Lots of clients are the only metric that you can grow almost infinitely, i.e. the theoretical limit is that the number of people on Earth. And possibly more, depending upon your views on extraterrestrial retail.
2. Effectivity (Retail Conversion Rate)
Alright, we had to differentiate retail visitors and retail clients. Some visitor does not buy anything. It’s quite unlikely in a huge shopping mall, but quite common in specialty stores or luxury boutiques.
In e-commerce, we are referring to customer conversion ratio. This shows how many people a merchant becomes a buyer. It’s easy to compute if you already know your retail customer traffic. Just take the amount of retail transactions and split in with the amount of individuals who visited your shop. And multiply by 100, if you would like a percentage.
Client conversion ratio = No of transactions / Client traffic x 100
The effectivity depends greatly on the kind of retail business you are in. If you are selling clothes and apparel in a brick-and-mortar retail store, your likely customer transaction effectivity is 18-25%. This means one out of five clients buys something. If you are lucky, one out of four. It is never 100%. Even ice cream restaurant on a hot day doesn’t convert 100%, as one of your clients have left his wallet at home! If it’s brand new luxury cars, the conversion rate is microscopic by character.
According to Industry Retailer, the average conversion rate for e-commerce websites is about 2-3%. Sure it differs from industry to industry, but do not feel too relieved if you are in that range. To succeed, you want to be better than others. Simply use common sense and surf the world wide web to find benchmarks appropriate to your retail company, i.e. what you are selling.
3. Average Sale (Average purchase value)
Alright, now you’ve got two essential retail metrics to watch. Going more in depth, you will be interested in your average sale value. How cash dollars, pound, yen or euros your typical client spends in checkout? How has it changed over time?
So you’ve been working on getting more people into your shop, and attempted to make them purchase each time they come to your store? Compute the average sale, also known as average purchase value. It is the moment truth oftentimes.
Even a company with unsophisticated technology can very quickly quantify the average sale, but surprisingly they do not. It’s measured by dividing the total sales value ($) from the amount of transactions. Bear in mind the exact same customer could initiate numerous transactions; AOV decides sales per order, not earnings per client.
Average earnings order value = Total sales value / Number of transactions
This is far the most effective and the very best measure of the productivity of their revenue system. You get more visitors to your retail shop, they do actually buy more frequently, but the purchase average is falling? Watch out, you may be pushing the well-paying customer off. More traffic means more hassle, you’ll need more sales partners and your shop might become too crowded.
On the other hand, it can be just about OK if the average sale order value isn’t growing. In many retail companies, it isn’t possible to sell more expensive stuff or purchase more at the moment.
The average purchasing power of this society does have limitations, and so does the logically acceptable price level. You can’t charge 1000 dollars for a T-shirt. So sometimes the one thing you can do, is to get more customers and more transactions, even when the average value of a purchase is falling.
4. Items per purchase (Size of an average shopping cart)
In the retail business, especially brick-and-mortar outlet, a sold item more about estimates for extra revenue. Additionally, it brings together handling costs like inventory carrying costs, transaction time and wages of sales partners, needs for retail space.
Your point of sale system should be capable of supplying you with fairly exact data. If your transaction volumes are low, the amount of items might appear insignificant, like a carton of milk equivalent to a iPad sold. When the sales volumes are higher, it begins making a great deal more sense. If your retail company keeps up good averages per purchase, but the amount of things is increasing, it means people are buying cheaper products in bulk.
Assess your sales offers, perhaps you’re overdoing something? Come next month, and nobody buys shampoos and soap anymore because your clients now have large stock in your home.
Generally speaking, terms, if your typical purchases are moving up, the item count climbs, too. However, it would be better if the item count is slower to grow compared to sales value average. For the end of the day, you would like to sell for more money, not simply sell more.
Do not worry if ordinary shopping cart has more things in it. Typically, larger is better. Use common sense to evaluate the circumstance. You could aim for more items in a shopping cart with two =3 advertising campaigns.
However there are always limits. By way of example, it’s extremely tough to drive your customers into purchasing more than 1 suit at the moment. So if you are selling matches, anything over 1 thing per cart is for the better. No more mention brick-and-mortar, where shopping carts have physical limitations.
5. Gross margin (Sales profit before costs)
Gross margin is the difference between revenue and cost before accounting for certain other costs. Generally, it’s calculated as the selling price of a product, less the cost of products sold. It is rather basic math for company to understand how much it took you to acquire or create the thing you are selling.
Product price when sold = Merchandise acquiring or making price + Gross margin
Gross margin is exactly what a company lives on. This needs to cover all of the costs of production and selling, including wages, taxes, lease, transportation, and some other costs. If your business has debts to pay, these must be paid for by the margin, otherwise, it is impossible to survive.
Rule of thumb is to place the gross margin high enough so that you have tons of room to reduce. Even a thriving retail business is going to have some products that are more difficult to sell. These have to be discounted.
In actuality, nowadays customers are so spoilt that they anticipate -50% or even -70% reductions.
Typically, the lower the margins more items you sell and the more conversions you might have. Some retailers are low margin. Costco, Wal-Mart put their margins as low are 10-20% range. A merchant must have hundreds of thousands, possibly millions of customers for that.
Clothing and apparel retailers receive 30-50% gross margin, and this is minus the discounts! The smaller the company and the fewer things you will find sold, the greater the margin. Specialty stores have to maintain 100-500%, and it is not about greed but distance, employees, and customer per item sold demand greater margin.
NB! Don’t confuse gross margin and earnings markup. Markup is what a merchant adds in first place, leading to the entire price. A merchant can calculate real gross margin just when the product is sold. Gross margin is lower than original markup.
Competition and suppliers consume your margins, which means you can’t push it much higher than the market average, and can’t survive if it is considerably lower than that. Always know where you are with a specific product and discount. Take advantage of your enterprise resource planning (retail ERP) to keep your eye on the gross margin. Often it is also the only thing that the owners of a retail chain or shop really care about.
If you are doing well, the retail industry is going to have some cash left when stuff is sold and the costs are deducted. This gross profit. Normally it has several times less than gross margin. As a definition puts it, gross profit is a organization’s residual profit after selling a service or product, deducting the cost associated with its production and sale.
Gross profit = Revenue each item — Cost of things and selling process
Want to compare the gross margin and gross profit per product? It’s pretty tough to calculate how much time and distance spent on a specific solution, so just count your costs and divide by the amount of items sold. This is what the majority of the retailers do, though advanced enterprise management applications can be customized to figure the product’s dimension, stocking time and a whole lot more. Get decent software that enables this in future.
There are more signs a retail business owner and supervisor can track. ConnectPOS is working in close collaboration with many big retail firms, including multinationals, and what we see is that effective management retains daily watch on a restricted set of retail metrics.
►►► ConnectPOS is a cloud-based POS software compatible with multiple platforms including Magento, Shopify & Shopify Plus, and BigCommerce.
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