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Analytics for Retail: The Right Metrics to Use for Your Business
by Bizom
April 25 | 09 min read
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Do you know what separates successful retail businesses from the rest? It’s not just a stroke of luck or a brilliant marketing campaign, but a strategic focus on essential retail metrics. These metrics empower retailers to make informed business decisions, stay ahead of the competition, and drive growth.
A study by McKinsey underscores the importance of data analytics in the retail sector, revealing that retailers who leverage this approach for decision-making can potentially improve their operating margins by as much as 60%.
Retail metrics can be thought of as a treasure trove of insights, neatly sorted into three categories: Sales, Inventory, and Customer metrics. A closer look at these metrics helps you spot ways to improve your customers’ experience, figure out which products are the most popular, discover methods to increase sales, and gain valuable insights to help your retail business grow.
In this article, we’ll give you a complete rundown of retail metrics. We’ll talk about what they are, why they’re important for your business performance and the key retail metrics you should keep an eye on.
What are retail performance metrics and KPIs?
Retail performance metrics and KPIs (Key Performance Indicators) are measurements businesses use to evaluate their performance and success in the retail industry. Whether it is a physical retail store or an online platform, retail metrics figures carry great significance for any retail business. These metrics offer critical insights into areas such as overspending, product popularity, and progress towards overall goals. Furthermore, the significance of these retail metrics may differ depending on the stage of maturity of the business in question.
KPIs are widely utilized to evaluate whether businesses are achieving their intended goals. These metrics, also termed key performance indicators, provide a means to measure performance and make well-informed decisions regarding the best course of action. Talking about the current retail landscape, metrics are more accessible than ever before, and as with any aspect of business, what gets measured can be improved.
Retailers have numerous tools at their disposal for enhancing their performance, with KPIs offering insight into crucial areas such as revenue, inventory management, growth, customer satisfaction, and much more, contingent on the specific metrics being tracked.
Importance of monitoring retail metrics
Success in retail is a science; measuring metrics is the art of decoding it.
Research indicates a strong correlation between the monitoring of retail metrics and the profitability of retail businesses. As a business owner, you aspire to increase sales and achieve overall growth, demonstrating the importance of KPI tracking.
However, this is just one of several compelling reasons why keeping a close eye on your retail metrics is vital. Here are three additional reasons to consider:
1. Track performance
Failing to track your business’s performance leaves you wondering whether it’s thriving or suffering. While ignorance of the former may not be a pressing issue, the latter can sneak up on you and spell disaster for your business.
Monitoring performance is crucial as it provides insights into areas where improvements are necessary to increase sales and attract customers. Additionally, it offers a transparent and comprehensive view of your business’s overall performance. NewGenApps revealed that businesses that consider maximizing the potential of big data analytics could potentially increase their operating profits by 60%. Comparing in-store and e-commerce sales is complex, but a commerce platform that integrates online and in-store data can make it possible.
Retail Intelligence by Bizom is a platform that allows retail businesses to accept in-store and online payments, manage inventory for both channels and monitor sales performance through easily understandable reports.
Verdict
Tracking performance is essential in identifying areas that require adjustments or enhancements to boost sales and attract customers.
2. Improve forecasting
Effective sales forecasting is crucial to the success of retail businesses. By accurately monitoring and predicting inventory requirements at the SKU (Stock keeping unit) level for each store, businesses can optimize inventory investments and maximize gross margin return on inventory (GMROI).
Analytics can help businesses achieve a high level of forecasting accuracy, enabling them to reduce costs and increase profits by
- Stocking sufficient inventory without overstocking
- Selecting optimal prices for SKUs
- Establishing accurate merchandise and financial targets
Verdict
Accurate sales forecasting, enabled by analytics, can help retail businesses minimize costs, maximize profits, and optimize inventory investments.
3. Informed business decisions
Making business decisions without tracking metrics is akin to doing so blindly. However, detailed data and information about your business’s history can empower you to make informed decisions that result in improved sales.
With Bizom’s Retail Intelligence, you can access historical data from every retail store. The date range can be personalized to meet your requirements, enabling you to compare analytics data from the previous week, month, or year. With this knowledge, you can make informed decisions about sales and marketing strategies that yield better results.
Verdict
It’s crucial for businesses to have access to actionable insights from personalized historical data, enabling informed decision-making for sales and marketing strategies.
10 Retail metrics every business must track
For a lot of businesses, sales volume might seem like the go-to metric of retail growth, but growth entails more than just revenue increase. Streamlining operations can enhance processes and result in higher sales, better expansion, and improved business performance. Below are some popular retail metrics and KPIs used to gauge success.
1. Sales per square foot
This metric calculates the average revenue earned per square foot of retail space. A high sales-per-square-foot value suggests that store management is effectively driving sales within the allotted space. This indicates that they are making the right choices in terms of product selection and in-store display strategies.
Formula: Sales per square foot = Net Sales / Store Square Footage
2. Sales per employee
Sales per employee is a KPI that calculates the average revenue generated by each employee for the store. This metric is used to assess the store’s efficiency, identify the need for additional training for retail staff, and determine if the store is more profitable than its competitors.
Formula: Sales per employee = Net Sales / Number of Employees
3. Conversion rate
The retail conversion rate is the percentage of visitors to your physical store who leave with a purchased product. While tracking this metric is relatively straightforward for e-commerce stores, it can be more challenging for physical stores to monitor foot traffic. One potential solution is to use traffic counting systems at the entrance to determine the number of people visiting the store each day.
Formula: Conversion rate = (Number of Sales / Number of Store or Website Visitors) x 100
4. Customer retention
Customer retention in retail refers to the ability to attract and retain a loyal customer base. A high retention rate is an indication of effective marketing strategies, high-quality products or services, and targeted messaging to the right customers. It also signifies optimized profitability for the business.
Formula: Customer retention = ((Number of Customers at End of Period – Number of New Customers During Period) / Number of Customers at Start of Period) x 100
5. Total sales value
It is a metric that measures the total revenue a company generates from selling its products or services over a specific period. This KPI provides a clear understanding of the company’s sales performance and can help make informed decisions about the future of the business.
Formula: Total sales value= Quantity Sold x Average Price per Unit
6. Brand/Category value
This KPI measures the value of a particular brand or category in terms of sales revenue. It helps companies to track their brand/category performance and make necessary adjustments to improve it.
Formula: Brand/Category value = (Total Sales Value of a Brand/Category / Total Sales Value of all Brands/Categories) x 100
7. Unique sales percentage
The Unique Sales Percentage KPI is a metric that measures the percentage of unique customers who have purchased from a company. This KPI helps understand the customer base and identify new acquisition opportunities.
Formula: Unique sales percentage = (Number of Unique Customers / Total Number of Customers) x 100
8. Outlet growth
The KPI measures the increase in the number of outlets where a company’s products or services are sold. Monitoring Outlet Growth is crucial for companies looking to expand their business and increase their market share.
Formula: Outlet growth = ((Number of Outlets in the Current Period – Number of Outlets in the Previous Period) / Number of Outlets in the Previous Period) x 100
9. Product lines sold
This metric measures the number of product lines a company has sold over a specific period. This KPI helps understand the company’s product portfolio and identify areas for expansion or improvement.
Formula: Product lines sold = Number of Unique Product Lines Sold
10. Gross margins return on investment
The GMROI, or gross margin return on investment from your retail stores, is a measure of your inventory’s profitability. It calculates the profit margins for your inventory and determines how much revenue your inventory has generated. A low GMROI indicates that your inventory is not producing enough profit and may require corrective actions such as raising prices or reducing inventory costs to improve profitability.
Formula: Gross margins return on investment = Gross Profit / Average Inventory Cost
Track key metrics with Bizom's Retail Intelligence
In conclusion, the cornerstone of cultivating a thriving retail enterprise lies in accurately comprehending and consistently monitoring crucial performance indicators. Bizom’s Retail Intelligence platform revolutionizes this endeavor by automating data collection and delivering precision and real-time insights. This cutting-edge solution simplifies the management of essential retail metrics, enabling you to make data-driven decisions that propel your business toward exponential growth.
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