Retail services today have access to more data than before. As always with businesses having metrics- they can study it, measure it and find ways to improve it. As a retailer, you are always paying attention to your inventory. You must ensure items are in stock and the ones that leave the warehouse are recorded. To measure all these you need KPI retail.
What is KPI in retail?
This is a parameter that tracks the Key Performance Indicators making your business more data-driven. It is a quantifiable metric that you can use to assess the success of a retail business.
8 Types of KPIs in Retail
Unlocking performance potential requires a nuanced approach. Here’s a breakdown of eight types of KPI retails to gauge that success effectively.
1. Year-Over-Year Growth
This reveals how much sales have increased or decreased. It compares a company’s current sales for a specific period to its sales for the same period in the past year.
| Formula: [(Sales of This Year- Sales of Previous Year)/ Previous Year’s Sales]x 100 |
Let’s say you sold INR 500,000 in Q1 of 2023 and INR 400,000 in Q1 of 2022. Your calculator for year-over-year sales will be:
YOY Sales= [(500,000-400,000)/400,00]*100= 25%
The Purpose
Such retail KPI formulas show that tracking sales every quarter helps in understanding how your sales grew or declined in comparison to the previous year. It helps to put your growth in context and gives you the bigger picture of your company’s performance.
As you look at this KPI retail metric alongside other strategic changes you made, you may be able to identify what’s contributing to a decline or growth in sales. For instance, you added new products to your lineup between last year’s Q1 and this year’s. This might have affected the sales increase.
Let’s see the next KPI retail metric.
2. Sales Per Square Foot
This measures how much money you’ve earned for each square footage of the store’s floor space. Remember only the sales space is taken into account, which means fitting rooms and stockrooms are not included.
| Formula: Net sales/Amount of sales space |
For instance, if your net sales were INR 40,000 for a specific time frame and you have 500 sq. ft. of space. This is how to calculate KPI in retail:
SPSF = 40,000/500 = INR 80
Simply put, you are making INR 80 in net sales for every square foot you occupy.
In other words, for every square foot of sales space you occupy, you’re making $80 in net sales.
The Purpose
Most businesses that have physical stores can measure the efficiency of their store layout. This KPI retail metric allows you to get a better sense of how well a store is performing. This is important if you have multiple store locations.
By analysing these numbers you can decide whether you need to downsize or expand. You can also consider improving your store layout, optimising pricing strategy to get people to stay longer or offering creative promotions.
3. Conversion Rate
This KPI retail factor allows you to measure the percentage of visitors to your store or website who bought products, generating revenue.
Formula: (Number of Sales/ Number of store visitors) x 100
For example, if you had 5,00 visitors in a month and 2500 of them converted (bought products), your calculation would be:
| Conversion Rate: (2000/5000) x100 =40% |
The Purpose
How to achieve KPI retail? Well, you can measure the conversion rate to see if you’ve convinced customers to make a purchase. Traffic is not the only factor contributing to your revenue. Make sure there are conversions as well.
A low conversion rate would suggest that you must adjust your retail sales process. For instance, you can consider revamping your store or website, using more compelling promotional tactics.
4. Cost of Goods Sold (COGS)
This measures what it costs for you to acquire or produce the inventory.
| Formula: Beginning inventory + Inventory purchases – Ending inventory |
Let’s see one of the retail store KPI examples.
A store starts with 20,000 INR worth of inventory then purchasing more of 70,000 INR. The year ends with a 10,000 INR inventory then the cost of goods sold will be:
Cost of Goods Sold: 20,000+70,000-10,000= 80,000 INR
The Purpose
You must measure COGS to assess profitability. Knowing how much you spent to have the products, you can set up the selling prices accordingly. Additionally, this KPI retail factor is important in your accounting records where you need to measure metrics like gross profits.
Want to know how to increase KPI in retail? Check out the next factors that are quite crisp.
5. Digital Traffic and Foot Traffic
This is a useful indicator of how well users know your brand. It shows you how successful your marketing campaigns are and tells you if your physical and digital storefronts are performing well.
This KPI helps you to improve and create strategies that generate more visits to your physical store location. Let’s see another KPI retail metric.
6. Inventory Turnover Rate
Do you want to figure out how fast your inventory moves? This formula will help you.
Formula: Total cost of inventory sold / Average inventory cost
Sitting on a stock for too long is likely going to make you lose money. Also, going through stores quickly is preventing you from capitalising on market demand as effectively as possible.
This is an excellent metric to understand which inventory items are most affected by seasonal trends. Inventory tracking also gives insight into which items are selling well and which aren’t.
If an item is sitting on the shelves for too long, it requires a demand-generating campaign. Or you might have to discontinue them. You can create a campaign across all product lines and take action.
The retail KPI list also includes measuring the success between online and offline sales.
7. Online Versus In-Store Sales
Do you run a business with both online and physical stores? Understanding the revenue source is crucial. Tracking revenue by channel (online vs. offline) helps you assess the efficiency of each location. This KPI retail data can reveal if maintaining both stores is necessary, or if focusing on a single, more profitable channel makes better sense.
Wait, here’s the last option on how to improve KPI performance in retail.
8. Shrinkage
Tracking one key metric, shrinkage is essential for protecting your profits. Shrinkage refers to inventory loss that isn’t due to sales. Common culprits include:
- Administrative errors: Mistakes in ordering, receiving, or recording inventory.
- Employee theft: Dishonest employees taking merchandise.
- Shoplifting: Customers stealing products.
- Supplier fraud: Inaccurate deliveries or billing from vendors.
Formula: Ending Inventory Value – Actual Inventory Value.
Remember, shrinkage eats into your bottom line. So, calculate and avoid it.
With these eight KPIs, your retail business will be a roaring success.
FAQs: What is KPI Retail: Measuring 8 Metrics for Success
How can KPIs improve supply chains for retail?
Gain insights into areas that need improvement. For instance, a low order delivery rate can highlight the inefficiencies in warehouse management. Identifying bottlenecks helps to optimise your supply chain for better customer satisfaction and cost reduction.
What is the frequency of analysing KPIs?
It depends on your business needs and industry. However, regular monitoring (weekly, monthly, quarterly) is best. This allows you to identify trends, measure progress towards goals, and make informed decisions for optimising your retail supply chain.
Can I use the same KPIs for online and in-store performances?
There can be some overlaps, but completely aligning the two is not ideal. Online stores may prioritise metrics like website traffic and average order value, while physical stores might focus on conversion rates from foot traffic or in-store promotions. Analyse each channel’s unique aspects and tailor KPIs accordingly.
Conclusion
Unleash peak performance with data-driven KPI retail insights. These eight KPIs empower you to optimise inventory, sales and customer experience. Carefully navigate the complexities.
That is where, Qodenext, your supply chain experts are here to help. We streamline operations, boost inventory management, elevating customer satisfaction. Get an inquiry today!
