Count what can be counted, measure what is measurable, and make measurable what is not.” – Galileo Galilei. Galileo Galilei, the father of modern science, had foreseen it: the balance between experience and reason is the foundation of the mathematical measurement of all things. Monitoring the right data is, therefore, essential to have a clear and precise picture of the situation, and the world of sales is certainly not exempt from this concept. Let’s dive into the specifics by analyzing which retail KPIs are the most important to always keep an eye on, and why.
Retail KPIs: What they are and why you should monitor them
KPI, an acronym that has become quite popular in recent times, but… how many truly understand its intrinsic meaning? Key Performance Indicator is its definition, a tool that measures the commercial and economic objectives set by a company with a strategic and development perspective. Today, we focus on the analysis of KPIs in the retail sector, which in recent years has undergone the fastest transformation process (“thanks” to the pandemic period). Using data in a context of profound change has represented, and still represents, not just an opportunity but a necessity for improving commercial decisions. Those who have been in the retail sector for a long time know well that the data, which they are bombarded with daily such as: sales per square meter, revenue and profits, sales per hour, inventory, etc., need to be analyzed. However, knowing which ones to focus on becomes a challenging task. And this is where retail KPIs come into play— the most important metrics for the company in question, the same ones that help answer difficult questions in order to measure the store’s health and determine the steps to take for continuous improvement. Essentially, KPIs are numbers to be regularly monitored to determine whether the path taken is the right one.
Retail KPIs: The most important indicators to monitor
We have just analyzed what KPIs are and how valuable they are for understanding the performance of your store, capable of developing truly effective marketing strategies. Now, let’s take a step forward by analyzing which retail KPIs are necessary to consider. Below is a list of the most important ones for the sector.
Input/sales ratio
A retail KPI used in many fashion retail stores is the ratio between the number of people who enter the physical store and those who ultimately make a purchase. Although it is a metric disliked by many store owners, as there are cases where a group of people enters a store but only one ends up making a purchase, this remains one of the key KPIs to track sales performance on a given day.
Number of sales on total products
Sell Through is the retail KPI that calculates the ratio between the number of products sold and the total number of products brought into the store. This metric can be calculated based on the collection or product category and is great for evaluating the performance of seasonal sales.
Daily/Weekly/Monthly Budget
Many stores, especially those dependent on the parent company, have budgets to meet because otherwise, the performance of the store and the employees working within it are considered non-compliant.
This is one of the indicators that many salespeople fear, as, as mentioned, many businesses link sales to the shifts of a specific employee. If the results achieved during those hours are significantly poor, the employee could risk being fired.
Medium Receipt
The medium receipt measures the average amount spent by a customer per purchase and is obtained by dividing the total revenue by the number of receipts issued. For example, if the revenue is 10,000 euros from 100 receipts, it means that each customer in the store spends an average of 100 euros.
New sales vs. repeat sales
This retail KPI is essential if you want to monitor new customers versus returning ones. Since it is often difficult to know whether a customer has been to the store before or if it’s their first time, one way to address this gap is by offering them a free card, allowing you to have a record of all the new customers who have entered the store and made a purchase in recent times.
Number of items per transaction
UPT, which stands for Units per Transaction, indicates the average number of items sold per receipt and is calculated by dividing the total number of items sold by the number of receipts issued over a given period.
Low-performing products
This indicator is important to identify which items are not appealing to customers, so that appropriate strategies can be implemented to remove them from stock, preventing them from becoming unsold items. This could involve putting them on promotion or deciding to remove them permanently from the catalog.
Sales by space
The Sales Square Foot is a metric that is exclusively applied in the performance analysis of particularly large stores because it measures the amount of sales generated per square meter. This indicator can be particularly useful for comparing results obtained from similar or similarly sized stores.
E-commerce analytics
If the store in question has an e-commerce site, analyzing the data related to this channel is essential. There are numerous metrics and key points to focus on: abandonment rate, time spent on site, number of conversions per click, etc.
How to measure composite retail KPIs
The retail KPIs analyzed so far are considered basic KPIs for the industry. However, there are other retail KPIs that are often not particularly highlighted, but can be very useful for understanding the performance of a business: Below, we will analyze two of them:
Sales performance, which perfectly reflects the store’s and staff’s ability to convert visits into sales.
Swing, an indicator that compares traffic between different periods.
Sales performance
Sales performance corresponds to the average value of each transaction, i.e., the average receipt, for the conversion rate of a given period. In practice, it measures the value of sales in relation to the number of customers who enter the store. This KPI not only shows the performance of your business but also highlights the skills of the store staff in leveraging customer traffic, identifying exactly where to intervene to increase sales efficiency. Despite technology taking over many of the repetitive tasks, the warm, welcoming, and helpful approach of a store associate who competently and professionally advises customers on choosing the most suitable product can never be replaced. Numerous surveys confirm this: the store associate remains a key figure in purchases, a resource without which the shopping experience would be devoid of personality, in other words, “soul-less.”
Swing
Let’s now move on to the second most important composite retail KPI: the swing, which compares the customer traffic in-store between two different periods. By analyzing the available data, it becomes possible to understand which periods have higher foot traffic and investigate the reasons behind it. Let’s assume we want to analyze two different periods, which we label as period 1 and period 2. To calculate the swing, the percentage increase in sales is obtained by performing the following operation:
sales of period 2 – sales of period 1 / sales of period 1
To calculate the percentage increase in customer traffic, you perform this operation instead: traffic of period 2 – traffic of period 1 / traffic of period 1. Once these percentages are calculated, you need to calculate the swing, which is the percentage increase in sales in a period minus the percentage increase in traffic in a period. If the final result is positive, it means that the customer traffic in period 2 is being used effectively, generating more sales compared to period 1. Conversely, if the result is negative, it means that there has been a drop in sales in period 2 compared to period 1. The primary goal is to always achieve a positive swing compared to the same period of the previous year, identifying improvements to make in order to increase sales steadily and gradually.
Conclusions
We have often discussed KPIs, what they represent for the company that chooses to monitor them, but never in reference to the retail sector, that is, the consumption of goods and services. Well, staying on top of things, earning the trust of customers who follow the company and its values, is an indispensable aspect, today more than ever. This is where KPI analysis, especially for a sector like retail, can make the difference in terms of revenue and awareness. Having been on the market for years, we at Artmatica Partners take care of our clients and their business needs, also through data monitoring, which proves to be a very interesting and stimulating aspect on which to work in order to grow more and better. No magic, then, just diligent and careful study of the target audience for one’s business. Because measuring means knowing how to manage all the possible complications of a journey, which is full of obstacles but also many opportunities ready to be seized. Until next time!
