8 Ways to Measure Retail Performance and Productivity
Great retailers rely on the numbers
Understanding which campaigns and strategies drive the most sales for your retail store can help retailers build on their successes and minimize missteps. An effective way to assess what works best is to adopt metrics that show the business's strengths as well as areas that need improvement. Measuring productivity and performance calls for more than simply checking to see if the business made a profit each month.
One simple way to know if the business is healthy is to compare this year's same-store sales data to last year's revenue. But what if your store has been open less than a year?
It is critical for the success of your business to constantly work towards improving not only the efficiency of employees but the productivity of the store's selling space and inventory as well. This can be achieved by using various retail math formulas and calculations based on sales.
Too often, small business owners go off of their "gut" when making strategic decisions. They might base their decisions solely on the limited opinions of their sales staff who only work certain days of the week. In order to make wise business decisions, you need comprehensive data that can be used to form a more cohesive and complete assessment of performance.
Business owners may have "hunches" about what is happening in their operations but the data can tell very different stories. Data can also alert business owners to trends they are not aware of, which enables them to make adjustments.
Eight key performance calculations can be used to monitor your retail store. If you track these metrics on a regular basis, you can grow your business efficiently.
The sales per square foot data are most commonly used for planning inventory purchases. It can also roughly calculate return on investment and it is used to determine rent for a retail location. When measuring sales per square foot, keep in mind that selling space does not include the stock room or any area where products are not displayed.
Total Net Sales ÷ Square Feet of Selling Space = Sales per Square Foot of Selling Space
Sales per Linear Foot of Shelf Space
A retail store with wall units and other shelf space may want to use sales per linear foot of shelf space to determine a product or product category's allotment of space.
Total Net Sales ÷ Linear Feet of Shelving = Sales per Linear Foot
Sales by Department or Category
Retailers selling various categories of products will find the sales by department tool useful in comparing product categories within a store. For example, a woman's clothing store can see how the sales of the lingerie department compared with the rest of the store's sales.
Category's Total Net Sales ÷ Store's Total Net Sales = Category's % of Total Store Sales
Cash is king in retail and the biggest drain on your cash is your inventory. Selling big-ticket items is a potential way to generate profits but only when consumers by the products. Otherwise, they can be costly investments for the retailer. Measuring your turnover is one way to know if you are overstocked or even under-stocked on an item.
Sales (at retail value) ÷ Average Inventory Value (at retail value)
Known as Gross Margin Return on Investment, this calculation has become popular because it combines a couple of metrics into one and gives a more accurate picture of profitability compared to inventory turnover.
Gross Margin (dollars) ÷ Average Inventory (at cost)
Items per Transaction
Also known as sales per customer, the sales per transaction number tells a retailer what is the average transaction in dollars. A store dependent on its salespeople to make a sale will use this formula in measuring the productivity of staff.
Gross Sales ÷ Number of Transactions = Sales per Transaction
Sales per Employee
When factoring sales per employee, retailers need to take into consideration whether the store has full-time or part-time workers. Convert the hours worked by part-time employees during the period to an equivalent number of full-time workers. This form of measuring productivity is an excellent tool for determining the number of sales a business needs to generate when increasing staffing levels.
Net Sales ÷ Number of Employees = Sales per Employee
These are just a few of the ways to measure a retail store's performance. As retailers track these numbers month after month and year after year, it becomes easier to understand where the sales are generated, by which employees and how the store's merchandising can maximize sales growth.
Since the profit comes from the second item we sell and not the first, then accessorizing the sale is paramount. This is an easy calculation. Simply divide the total sales by the accessory sales. This will tell you how well your employees are doing at adding on the sale as well similar to the Items per transaction above. Depending on your products, an ideal range for this metric is 10%.
Net Sales ÷ Accessory Sales = Accessory % of Sales