8 Ways to Measure Retail Performance and Productivity
Great retailers rely on the numbers
Your retail store has customers steadily coming through the doors, employees are busy and there is the frequent 'cha-ching' of the cash register, but how well is your business really doing? One simple way to know if the business is heathy, 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 decisions. Or worse yet, they listen to the jaded opinions of their sales staff who only work certain days of the week. In order to make wise business decisions, you need data. I can't tell you how many times I had a "hunch" on what was happening in my business only to have it blown away by the numbers and the data. Or other times, when data showed me a trend that I was not tuned into and was able to make an adjustment before it was too late.
Here are what I believe to be the eight most important performance metrics calculations you should be monitoring in your retail store. If you track these eight on a regular basis, you will grow your business wisely and avoid setbacks from bad decisions based on intuition.
Measuring Performance of Selling Space
Sales per Square Foot
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 on 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
Measuring Performance of Inventory
Sales by Department or Product 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. 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)
Measuring Productivity of Staff
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