Seven key performance indicators retailers should measure to be more profitable

As an advisor to independent retail businesses across Cumbria I’m often asked if there are ways to be more profitable in an industry savaged by the online world. There is no magic solution to this but what successful retailers have in common is that they use the information they have within their business to help them make better more informed decisions. This in turn helps them make a better return on their business.

So what information (Key Performance Indicators – ‘KPI’s’) should retailers be measuring?

  1. Footfall - Footfall is quite literally the number of people that come into your shop and should be the first KPI in any retail business; many smaller retailers miss this step and jump straight to the number of sales they have made. This KPI can give you a great insight to your customers as to what day of the week/time of the day you get the most traffic allowing you to be more efficient with staff rotas. If you track weather alongside your footfall you can see on average what effect this has on your business.

    There are a number of different ways in which footfall can be measured ranging from traditional counters above a door to smartphone Wi-Fi trackers. A low cost beam counter can cost as little as £200.

    Once you are tracking footfall you should then consider what strategies you can adopt to increase your footfall numbers.

  2. Number of sales - The next KPI to be measured is the number of sales. This is a key number to identify the starting point of setting growth targets and is crucial in working out the next KPI’s, the Conversion rate and Average Spend.

  3. Conversion Rate - This uses the first two KPI’s to establish what percentage of the people that came through your door became customers and made a purchase. Again once you have this number you can then look at what strategies you can try to increase this conversion rate, for example specific sales training for sales staff.

  4. Average Basket Spend - Next is to monitor how much people are spending per transaction. The average spend is calculated by dividing the total value of sales in monetary terms by the number of sale transactions from above. 

    Average spend is important as an increase in the gross profit that this will achieve will drop straight to your net profit because it is not likely to add to any increased overhead costs.

    Once you know what your average basket spend is you can again look at strategies to increase this further, for example adding higher priced premium products or offering bundled stock packages.

  5. Profit Margin - This is measured by deducting the cost of sale from the sale price. It is a crucial number to know as you don’t want to be wasting your time and floor space selling stock that doesn’t make you any money. Once you know your margins by stock line you can look to see how you can increase these margins such as bulk buying.

  6. Product Returns - Every retailer hates to see a customer walk into the shop with a carrier bag with an item for return. It is therefore important the number is tracked so that you can work on ideas to reduce the number of returns in the future. Some retailers are offering price reductions in lieu of their return rights.

  7. Sales per Square Foot - For most retailers space is at a premium and therefore it is essential you track your sales per square foot. This is simply done by dividing your total sales (in value) by the square footage of your retail area.

    This can then be reviewed regularly as you look to new ways to improve this KPI such as changing the stock layout in your shop and giving the better sales lines more prominence in your shop.

For many of my clients it can appear quite time consuming to track these KPI’s but with the assistance of a good EPoS system and good accounting software such as Xero it can be made much easier to collate. The above seven KPI’s are by no means all the KPI’s that you can/should track but if you start with these you will soon see the benefits of your hard work. 

To in addition to this blog I have pulled together a handy guide with 45 simple strategies to help independent retailers be more profitable, if you would like a copy of this guide please email me at grant.smith@armstrongwatson.co.uk.

If you would like to talk through over a coffee anything from this blog or any other issues affecting your retail business please do get in touch.

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter

Subscribe

Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575

or

Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW