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 you build on your successes and minimize missteps. But measuring productivity and performance calls for more than simply checking to see if the business makes a profit each month. 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.
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 for less than a year?
Business owners may have hunches about what is happening in their operations but the data can reveal something very different. Data can also alert business owners to trends they are not aware of, which enables them to make adjustments.
This data can be gathered by using various retail math formulas and calculations based on sales. If you track these metrics on a regular basis, you can grow your business efficiently.
Sales per Square Foot
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 the 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. Unsold inventory is a costly investment 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)
Gross Margin Return on Investment
Gross Margin Return on Investment (GMROI) is a popular measurement 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 the sales-per-customer, the sales-per-transaction number tells a retailer the average amount of a 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
The profit in a retail store comes from the second item sold, not the first. Therefore knowing the accessory sales provides information on what items are generating a profit. To calculate this number, simply divide the total sales by accessory sales. This will tell you how well your employees are doing at adding additional items onto the sale, 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
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 can maximize sales growth.