Retail KPIs are critical for businesses; using key performance indicators (KPIs), organizations can better understand whether goals are on course and determine necessary actions to obtain more favorable outcomes. Businesses can gain a distinguishable competitive advantage by utilizing KPIs to drive more profitable strategies.
We’ve rounded up 27 retail KPIs that should be tracked across sales, customer service, inventory, and general performance. By monitoring KPIs and following retail inventory management best practices, you can ensure your business remains aware of changes in operation and make data-driven decisions to stay on track.
Retail KPIs are quantifiable retail metrics that enable decision-makers to understand current business processes and operations better. Every retailer, large and small, should call upon KPIs to obtain a better view of their company’s efficiency and profitability.
Some business owners may be more familiar with the term “KPI metrics.” There is no difference between KPIs and KPI metrics; they are the same concept phrased slightly differently. Regardless of what you call them, all business owners should monitor KPIs; following this process, businesses can utilize learned information to drive better decision-making.
For example, a retail operation can use the average transaction value (ATV) KPI to identify the average amount of money a customer spends. Or, they may use the time to fulfill KPI to better understand how long it takes for customers to receive their merchandise.
Sales KPIs are quantifiable measurements that enable sales team members, from managers to associates, to gauge the sales process better. By monitoring sales KPIs, teams can identify gaps and better understand how to maximize return on investment. Here are six essential sales KPIs your team should monitor:
The sales per square foot KPI enables businesses to measure average sales across a physical area. When calculating sales per square foot, it is crucial to count only actual sales areas and not non-sales areas such as inventory locations, offices, and restrooms.
Formula: Net sales ÷ Total sales space square footage
Why it matters: For physical retailers, the sales per square foot KPI allows businesses to determine how to best maximize their sales space. For example, if you have a product that’s taking up space but isn’t selling, it may be time to pull it.
Year-over-year (YoY) sales is a critical metric that allows businesses to understand their performance over time. There is no equation for this KPI; instead, it is simply gross or net sales compared to previous years. You can also apply the principle to shorter periods, such as days, weeks, and months.
Why it matters: Monitoring a YoY KPI enables organizations to understand how they operate from a high vantage point, allowing them to gauge overall performance and growth better.
The sales per employee KPI divides a business’s overall net sales dollar value by the total number of employees. This helps companies determine employee efficiency in relation to overall profits.
Formula: Net sales (in dollars) ÷ Total number of employees
Why it matters: A higher sales per employee metric is best; a lower number suggests the business may have too many employees, or current employees need to be more efficient.
A conversion rate KPI highlights the number of people who have completed a specific action that your business finds valuable. In commerce, this may be the number of people who visit a website or store and complete a transaction.
Formula: Total visitors ÷ Specific action
Why it matters: Understanding how many potential customers complete an action informs businesses of how well they capture sales. For example, a retail store may want to rearrange merchandise if many customers enter but fail to complete a purchase action.
ATV is the average amount a customer spends per transaction. The KPI is calculated by taking the total business revenue for a set period and dividing it by the total number of transactions.
Formula: Total revenue ÷ Total transactions
Why it matters: The ATV KPI allows decision-makers to understand how products are selling. Businesses can increase their ATV by encouraging tactics such as upselling and cross-selling.
Average basket size is the number of products the average customer purchases in a single transaction; it can be calculated by dividing the total units sold by total transactions. Note that ABS highlights average purchase units, not average purchase cost.
Formula: Total units sold ÷ Total transactions
Why it matters: Analyzing the average basket size metric allows businesses to understand their customers better while monitoring potential sales efforts. If your ABS decreases over time, you will need to research why consumers are purchasing less.
Customer service KPIs give those working within the retail industry a better idea of current performance and satisfaction levels. KPIs such as customer retention, return rate, and average sales allow businesses to understand their target customers better. Here are six customer service KPIs to consider for your retail business:
The customer retention KPI allows businesses to understand repeating customer purchases better. As a returning customer is an essential part of most retail spaces, it’s vital to understand whether your customers return after their initial visit.
Formula: (Current customers ÷ Initial customers) x 100
Why it matters: Generally, a high customer retention rate indicates satisfied customers. If customer retention is low, consider gathering feedback to determine why you aren’t retaining customers.
The foot or digital traffic KPI monitors the total number of entrances people make into your store, whether physical or digital. It gives you an idea of how enticing your store might appear to potential customers.
Why it matters: A business that comprehends its traffic KPI is better equipped to understand how well its brand is known and how enticing it may be to potential shoppers. Low traffic may require marketing to help stir up interest.
A customer satisfaction KPI enables businesses to understand how content shoppers are after interacting with the company. A higher customer satisfaction index will likely result in a more loyal customer base. Below is a basic formula for customer satisfaction based on obtained customer feedback.
Formula: (Satisfied customers ÷ Total customers) x 100
Why it matters: Customer satisfaction KPIs can affect other performance indicators, significantly influencing overall customer retention and loyalty. Focusing on improving your customer experience is the key to increasing satisfaction. A business could also use the Net Promoter Score (NPS) metric to gauge satisfaction better.
The product return rate KPI, or rate of return KPI, helps a business measure the rate at which customers return merchandise. A high return rate can indicate a fundamental issue with products or, in some cases, fraudulent activity.
Formula: (Returned orders ÷ Total orders) x 100
Why it matters: If a business has issues with return rates, it must handle the situation before profits take a hit. Carefully analyze the product, shipping process, and return policies.
Understanding the average sale per customer KPI gives businesses a better understanding of customer value. As part of a customer acquisition cost analysis, companies can better understand how much of their budget should be devoted to obtaining new customers.
Formula: Total revenue ÷ Total Customers
Why it matters: Knowing customer worth allows businesses to make more informed decisions. For example, if your average customer is valued at $30, you may want to avoid launching a campaign that costs you $150 per new customer.
Cross-selling and upselling KPIs allow you to determine how efficiently your sales team employs tactics to improve sales numbers. Cross-selling is selling a customer another product in addition to their original purchase, while upselling is getting the customer to purchase a more expensive product than initially intended.
Formula: (Revenue gained by cross/upselling ÷ Total revenue) x 100
Why it matters: Cross-selling and upselling can be powerful sales tactics if you’re attempting to increase your average transaction amount and, ultimately, your bottom line. This KPI allows you to monitor better how such tactics affect your business over time.
Inventory KPIs allow businesses to analyze their existing inventory management techniques and determine whether they can make changes to improve efficiency. Common inventory KPIs include turnover rates, holding periods, and the average cost of goods sold (COGS).
Before diving in, it’s essential to know all inventory KPIs require robust inventory accounting methods for inventory valuation — otherwise, you may not obtain the correct figures. Once inventory figures are validated, inventory KPIs can help you gain insight into your backend processes.
Here are seven KPIs that can help you take your inventory process to the next level:
Gross margin return on investment (GMROI) helps businesses determine their current efficiency, converting inventory into profits. The higher the number, the more profits are generated. The GMROI is a prevalent metric for retail stores that can help dictate success for physical and e-commerce operations.
Formula: Gross profit ÷ Average inventory cost
Why it matters: As the GMROI considers a business’s inventory costs, it’s an excellent way to glean the efficiency of inventory methods. If the GMROI is low, you’ll want to evaluate how to make your process more economical.
The inventory turnover KPI indicates the rate at which stock from your inventory is sold, used, or replaced. This business KPI is determined by dividing the cost of goods sold by the average value of your inventory.
Formula: Cost of goods sold ÷ Average value of inventory
Why it matters: Calculating and keeping track of the inventory turnover rate allows businesses to measure how often stock is moved. But what is a good inventory turnover rate? For most industries, that number is between four and eight.
The average inventory holding period KPI denotes how long a business holds onto stock before selling it. To calculate this KPI, you’ll want to divide the average inventory value by the cost of goods sold. If you wish to convert the metric to days, multiply it by 365.
Formula: (Average inventory value ÷ Cost of goods sold) x 365
Why it matters: Studying the average inventory holding period allows businesses to better understand how fast specific products sell. A lower holding period means a product is more in demand.
The cost of goods sold KPI, also referred to as the cost of sales, allows a business to determine the direct costs of producing goods or services. The formula considers only product-related costs, such as raw materials and direct labor.
Formula: (Beginning inventory + purchases) – Ending inventory
Why it matters: A critical factor in evaluating a business’s efficiency, COGS allows a company to determine its gross profit, or the overall profit it makes, after all related product expenses.
The sell-through KPI informs businesses how much inventory they’ve sold in a month compared to the amount received from suppliers. The sell-through rate is a quantitative measure of how efficiently a company turns over acquired inventory.
Formula: (Units sold ÷ Units received) x 100
Why it matters: Understanding the sell-through rate is critical for businesses looking to refine purchasing and ordering. Companies can focus on inventory turnover by better understanding this KPI, reducing potential storage costs.
Shrinkage rate highlights the amount of inventory a business has compared to how much it should have. Shrinkage is unavoidable in dealing with merchandise and can be attributed to theft, damage, and human error.
Formula: (Lost inventory value ÷ Total sales) x 100
Why it matters: Businesses must understand their shrinkage rate and how they can prevent inventory shrinkage, as it directly takes away from a retailer’s bottom line. For example, internal and external theft is common and can significantly increase shrinkage, so it should be closely monitored.
A business’s stockout rate is the percentage of occurrences when a customer requests a product but it’s unavailable in your inventory. Understanding the stockout KPI enables companies to comprehend better how often they may lose out on potential sales.
Formula: (Product not in stock ÷ Total products) x 100
Why it matters: It’s vital to understand how the stockout rate affects your business and how you can improve inventory management to prevent future lost sales. Having an item out of stock directly hits a company’s overall sales figures and indicates that you may need to make inventory modifications.
Performance KPIs give businesses a general indicator of overall success. While “performance key performance indicators” may appear redundant, they generally offer a business a bird’s-eye view of current operations, indicating if a company is on track with its goals or if adjustments need to be made to operations. Here are eight performance KPIs every business should know:
Year-over-year growth results are acquired by comparing a metric over multiple years to see how it has altered. Utilizing the year-over-year growth KPI enables businesses to see which direction (positive, negative, or neutral) specific KPIs, such as gross profit, are heading. Compared to YoY sales, YoY growth considers a business’s overall performance, including factors such as net profit.
Formula: (Current value ÷ Prior value) – 1
Why it matters: Understanding the YoY growth of your critical metrics is essential to understanding whether your business is on track to hit its established goals.
The return on assets KPI showcases how much profit a business may be able to render from its current assets. ROA is an excellent way for companies to understand better how efficiently they produce profits from available resources.
Formula: Net income ÷ Total assets
Why it matters: Every business should know its ROA, as it provides insight into overall business profitability. A higher ROA is preferred, showcasing that a company is more efficient at generating profits.
Comparing online versus in-store sales is a useful KPI for retailers operating physical and e-commerce shops. Analogizing where most sales originate can help companies determine if resource allocation in each physical or digital store makes sense.
Why it matters: Understanding online versus in-store sales can help a business determine its efficiency across multiple retail landscapes. For example, a company may put 60% of its resources into physical locations but see 90% of purchasing online. In that case, it may not make sense to continue brick-and-mortar locations.
After subtracting all related production expenses, gross profit indicates how much profit a business makes. The simplest way to calculate gross profit is to deduct the cost of goods sold from your total sales figures.
Formula: Total sales – COGS
Why it matters: Gross profit is one of the most critical KPIs for businesses, as it helps communicate the profitability of a company. When compared year over year, gross profits can indicate the overall efficiency of a business.
A business’s net profit is how much it makes after subtracting operating costs and other related expenses. Like gross profit, net profit can assist decision-makers by informing them whether or not the company makes more money than it spends.
Formula: Gross profit – Operating expenses – Taxes
Why it matters: Another critical business KPI, net profit helps inform whether an operation is profitable and overall business health.
The time to fulfillment KPI enables businesses to gain insight into the period between order placement and shipment. Retailers that work on decreasing their time to fulfillment will likely see an increase in overall customer satisfaction.
Why it matters: In today’s online marketplace, customers want their goods fast. By monitoring the time to fulfillment KPI, businesses can improve their shipping process and remain more competitive
Quick ratio does precisely what it sounds like it might — it allows businesses to get fast insights into overall efficiency. A reliable all-in-one KPI, fledgling companies can use the quick ratio to help determine their overall growth rate.
Formula: (Cash + Accounts receivable) ÷ Current liabilities
Why it matters: If a decision-maker is looking to understand the profitability of a company, they may request information about the business’s quick ratio. A quick ratio of 1.0 or greater is ideal, highlighting that the company can pay its expenses.
The cart abandonment rate alerts businesses to how many customers ditch their carts before finalizing a purchase. E-commerce retailers should note when and why cart abandonment is occurring.
Formula: Completed purchases ÷ Shopping carts created
Why it matters: Monitoring and understanding the cart abandonment rate can help companies remove barriers, such as high shipping fees, that may cause shoppers to halt the order process.
Retail KPIs are an integral part of running a retail business. We’ve highlighted a few situations in which you would want to call upon KPIs to get a better idea of how your operation functions.
By using retail KPIs, you can better understand your business and make the correct decisions for success. Other KPIs enable retailers to understand better their sales processes, customer base, and overall efficiency.
Managing a business is challenging, and, at times, you may feel the high volume of data rushing at you is overwhelming. Inventory control and management is a critical discipline for any retailer, so many choose to utilize software to streamline management processes and avoid human error.
Inventory management software can unify your business across multiple channels, automating once-complex tasks into only a few clicks. Cin7 provides inventory management solutions for retailers, helping them stay focused on what matters. With a unified commerce approach, retailers can work with a single piece of software rather than swapping between endless, siloed options.
You may have additional questions about retail and business KPIs and how they can affect your business operations. We’ve answered some of the most frequently asked questions to help you understand the topic more deeply.
There are many different retail KPIs that business owners should pay attention to, but these five retail KPIs are a great place to start the process:
To set a retail KPI, business owners must have a goal in mind. Is the goal to increase overall foot traffic or customer satisfaction? Or maybe reduce shrinkage and stockout rates? Next, business owners should match their goal to a KPI that addresses the operational aspect. For example, those interested in bringing more people into their store should focus on the foot traffic KPI.
There are no four main types of performance indicators. Indicators fall across categories that vary, depending upon the business in question. For this guide, we have broken KPIs down into four categories: sales KPIs, customer service KPIs, inventory KPIs, and performance KPIs.
While there are many KPIs you could measure, the most important KPIs in retail are sales per square foot (if you have brick-and-mortar locations), conversion rate, sales per employee, average transaction value, and foot traffic or unique website visitors. These KPIs are an excellent place for retailers to start managing the efficiency of their business once they are comfortable managing their inventory.
Sales KPIs are the best way to evaluate sales. Retailers should consider monitoring and analyzing sales per square foot, YoY sales, sales per employee, conversion rate, ATV, and ABS.
An excellent way for retailers to measure store productivity is through the sales per employee KPI. Taking your business’s overall net sales and dividing it by the number of employees highlights the efficiency of current staffing.
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