The retail industry is one of the most competitive with crucial focal points being increasing sales, maintaining customers, and gaining new ones. Key Performance Indicators (KPIs) can help a retailer determine which metrics to use to keep their business on top. When regularly monitored, KPIs provide insight into important areas of a retail business.
There are hundreds of KPIs that retailers can track. However, it’s important to determine the ones that measure real business results. After that, building a retail strategy around those KPIs will give retailers a clear image of what really drives positive results.
Important KPIs for the Retail Industry
Some of the most important KPIs and how they improve the retail industry are as follows:
- GMROI (Gross Margin Return on Investment)
- In terms of a retail business, this may be the most important KPI to track. It provides the best overall view of a retailer’s performance. GMROI measures profit return on the dollar amount invested in inventory. Providing analysis of how the business is doing overall, information on optimizing inventory, pricing, and merchandising of individual products makes this metric a critical one to track.
- Sales per Square Foot
- This Key Performance Indicator provides important information concerning the efficacy of the store layout as well as the performance of sales personnel by measuring the quantity of average sales generated from each square foot within the retail store. Large retail chains are able to identify the store layouts that are more effective across different stores and then replicate them to improve sales.
- Average Purchase Value
- This KPI calculates the average amount customers are spending on each purchase. Additionally, a retailer can analyze the average purchase value to quickly determine the average dollar amount spent per transaction and in any given time period, i.e., daily, monthly, quarterly, or yearly. This is a vital KPI to help retailers optimize pricing and sales strategies.
- Inventory Turnover
- To put it simply, inventory turnover is the number of times inventory is sold during a defined period of time. Tracking this KPI gives a retailer information concerning how much product is being sold thus allowing analysis of inventory levels to determine if there is too much or too little. In turn, this helps increase overall efficiency, increasing profits and reducing inventory costs.
- Total Sales Count
- This KPI measures the total number of transactions processed in a retail store within a given time period. Total sales count is a vital metric because it helps a retailer determine how much product is sold and how busy a store is throughout a day, week, month, or year. This helps the retailer manage employee schedules, marketing efforts, and customer service. For example, if a retailer is consistently busy from 9 a.m. to 12 p.m. every Friday, an increase in staff may be needed at that particular time and day. Likewise, if Tuesday afternoons are the least busy, staff can be reduced for that day and time.
- Product Returns
- A product return KPI should be tracked by all retailers because it provides information that helps a retailer identify problems with customer service, quality of a product, and sales or marketing guarantees. For instance, a sales representative guaranteed that a coffee maker would automatically turn off in four hours and it did not. This is a defect with the coffee maker but is also a problem for the retailer in terms of quality of products. By analyzing product returns, a retailer is made aware of problem areas where the business may be lacking.
The above KPIs are just a few of hundreds that can be used to improve the retail industry. Every retailer should identify and track the top KPIs for their particular business as well as identify the people within the business responsible for them. By analyzing the information KPIs provide and taking corrective action if needed, a retail business has a much higher likelihood of success.