With so many options available to retailers these days when it comes to investing in growth, it’s difficult to truly understand what will work. The key to knowing if your investment is sound is through tracking the right KPI’s (key performance indicators). But, what are the right KPI’s? That’s the next big question.
Sure, we all want to track the bottom line: incremental sales. That’s the golden ticket. But there are often more nuanced KPI’s to track that lead to those sales. There are a whole lot of those metrics to follow, so we’re breaking them down into two separate articles. Here we explore what KPIs you can use to evaluate different aspects of your business, including overhead costs, online and in-store sales, and how you can measure them.
The Measurement Process
It’s easy to see the difference these KPIs will make over time with just a little bit of experimentation. First, you’ll need a control group: the reports on your sales, costs, or whichever figure you’re monitoring from 12 months ago. Next, make your business the test group by implementing one of these nifty KPI metrics for a while. Compare those figures from your current period to those from 12 months ago to see the results!
Measuring your KPI performance this way is a handy skill that’ll work for almost every metric. It’ll help you create conclusions based on the differences in your trends over time, which makes it a must-know for every retailer!
Key Progress Indicators for Overhead Costs
Sales per Square Foot
This KPI measures the amount of revenue generated on average for each foot of retail space in your store:
Sales per Square Foot = Total Revenue ÷ Total Floor Area
This is a popular metric for store owners who want a clear perspective when evaluating their rent costs or redesigning their layout. It’s the ultimate indicator of how effective your store layout and sales associates are selling products, and it helps in deciding whether or not to downsize, relocate, or upgrade your retail space.
Sales Per Hour
Sales Per Hour (SPH) is a helpful KPI to measure when reviewing staff-related overhead costs. SPE calculates how much revenue your employees contribute to your business on average by dividing your total revenue by the number of employees:
SPH = Total Revenue ÷ Number of Employee Hours
This metric is especially helpful in understanding how hiring or firing employees may improve or endanger sales. Measuring SPH can also suggest employee efficiency and profitability, as well as how the revenue of different retail locations may be affected by staff size.
It also helps to understand how the tools and technology you’ve implemented to aid your sales staff have helped drive increases or decreases in SPH. Tracking the before and after deployment of tools is an important metric to look at when evaluating strategic initiatives and investments in technology for associates.
Key Progress Indicators for Online Sales
Your online sales rely on website visits, which are easily measurable using Google Analytics. By monitoring your web traffic, you can regularly track the total number of visits (or “sessions”) on your site and compare them across time. Google Analytics also measures how many unique users visit your site—a feature that is extremely helpful for analyzing trends in how many new and returning visitors your website receives each day.
Average Order Value (AOV)
In an omnichannel retail world, average order value (AOV) is one of the best ways to measure how useful your online channels are compared to others. To measure AOV, divide the total amount of revenue by the number of orders taken within the same time frame:
Average Order Value = Total Revenue ÷ Total Number of Orders
Compare the AOV of your online store to that of your virtual sales associates to get a better perspective on their performance (you can do the same for your in-store AOV and sales associates as well!) This will help you coach your sales team and inform you on which channels and tech tools are worth investing in for your business.
Sales Conversion Rate
Despite the rise in customers shopping online at the expense of foot traffic, brick-and-mortar stores still typically make sales to 25-35% of their visitors while most retail websites convert only 1%. That’s many opportunities left on the table! You can measure how many of your customers end up making purchases by analyzing your sales conversion rate:
Sales Conversion Rate = Total Number of Orders ÷ Total Visits (in-store or online)
Measuring your sales conversion rate is incredibly important now that retailers have sales channels competing with each other, but it can be used for more than just comparing website and onsite AOV. Monitoring your sales associates’ conversion rates can help you see how your brand representatives are helping sales through customer interaction, too!
Key Progress Indicators for In-store Sales
Monitoring foot traffic into your brick-and-mortar store is a huge insight into how changes in seasons, aisle layout, and window advertising may affect customer attraction. Of course, counting each customer that walks in can be a hassle. That’s why every retailer needs one of the many in-store analytics tools that measure this KPI for them.
Average shopper dwell time
Your online analytics can measure how long a customer has browsed your website, but what about in-store? Discovering that your customers have a long dwell time and low conversion rate in your store could be an early warning sign of customer dissatisfaction. It could mean some of your items are out of stock, or that your retail associates are unable to close their sales. Retailers can catch these trends early on by using location analytics programs such as Coursa and Meraki to measure how long shoppers browse their store on average.
There are many tech tools and formulas retailers can use to evaluate their overhead, online and in-store KPIs, but we know there are still many more aspects of your business worth analyzing. Sign up to our newsletter (publishes every two weeks) to stay in touch for the next article on KPIs, where we will cover customer retention, talent attraction, and marketing.