Retail Store KPIs: Metrics to Track for Retail Excellence

Running a retail business, whether it's a physical store or an online shop, requires keeping a close eye on how things are going. Understanding the performance of your business is crucial for success. 

Numbers tell the real story. If you're feeling lost about what's happening in your retail business, start by examining your retail metrics and KPIs (Key Performance Indicators).

Thankfully, various retail KPIs are available to help you track performance across different areas like sales, customer retention, and inventory management.

In this article, we'll introduce you to some essential retail KPIs that can guide your decision-making process and improve your business operations. 

How to use retail KPIs

Using retail KPIs is essential for assessing whether your business is meeting its objectives. These indicators are aptly named because they provide key insights into your performance, allowing you to make informed decisions.

Depending on what aspect of your business you're evaluating, KPIs enable you to understand where you stand in terms of sales, inventory management, growth, customer satisfaction, and more. In the following sections, we'll delve into specific KPIs and how to leverage them effectively.

It's worth noting that while we'll outline formulas for calculating each metric, relying solely on manual calculations might be time-consuming and impractical, especially for larger retail operations. Investing in a retail software solution can streamline this process, providing you with timely insights and saving valuable time. Now, let's explore these metrics in detail!

Sales metrics

Sales metrics and KPIs play a fundamental role in the success of retail businesses. It's essential to monitor these metrics closely to ensure the health of your retail business. Below are some key KPIs to consider:

Conversion rate

Conversion rate is a crucial metric for both online and brick-and-mortar retail businesses. It reveals the percentage of visitors who make a purchase, providing a deeper understanding of customer engagement beyond mere transaction numbers. To calculate the conversion rate, you need to define a specific timeframe for analysis. For instance, let's consider a scenario where you revamped your store layout a month ago. During that month, 800 people entered your shop.

Upon checking your retail POS system, you discover that 640 transactions were processed during the same period. To calculate the conversion rate, divide the number of transactions by the foot traffic and multiply by 100.

Conversion rate = (number of transactions / footfall) x 100 Conversion rate = (640 / 800) x 100 Conversion rate = 80% 

Calculating the conversion rate for your online store involves a slightly different approach. Instead of foot traffic, you'll be looking at website traffic—the total number of visitors to your site.

For example, let's consider a scenario where you updated your website design three months ago to attract more traffic. Now, you want to assess the impact of the redesign on conversion. Over that time period, your webshop had 12,000 visitors, resulting in 2,000 conversions. 

Conversion rate = (number of conversions / website visitors) x 100 Conversion rate = (2000 / 12000) x 100 Conversion rate = 16.67%

Sales per square foot

Sales per square foot is a metric that assesses how efficiently you utilize the available space in your physical retail store. It's influenced by factors like the size of your retail space and the types of products you sell. Unlike some metrics, there's no universal benchmark for an "ideal" sales per square foot figure.

Traditionally, higher sales per square foot were seen as favorable. However, with the rise of omnichannel retail, this metric's significance has somewhat diminished since it only reflects sales made in physical stores, not online.

Nonetheless, for businesses leveraging their physical locations for experiential retail or promotional purposes—places where customers engage with products directly—sales per square foot remain relevant.

To calculate sales per square foot, you'll need to choose a specific timeframe and determine the total sales revenue generated during that period. For instance, let's consider the holiday season sales in your 500 square foot store. Your retail POS system shows total sales revenue of $700,000 for this period. Simply divide this figure by the total square footage of your store. 

Sales per Square Foot = Total sales revenue / Square footage Sales per Square Foot = $700,000 / 500 Sales per Square Foot = $1,400

Sales per employee

Sales per employee is a valuable metric for evaluating staff performance and optimizing staffing levels in retail operations. It indicates how effectively your employees contribute to generating sales over a given period, helping you allocate resources efficiently and maximize productivity.

A high sales per employee figure suggests that your retail business can achieve greater sales output with fewer staff members, resulting in lower overhead costs and increased profit margins.

To calculate sales per employee, you need to divide the total sales revenue generated during a specific time frame by the number of employees employed during that period.

For example, let's consider your sales revenue over the past two years, which amounted to £3,600,000. During this time, your retail business employed a total of 65 staff members.

Sales per employee = Sales revenue / Number of employees Sales per employee = £3,600,000 / 65 Sales per employee = $55,384.50.

TIP: Learn what good profit margins for retail are with our helpful guide.

Average transaction value

Average Transaction Value (ATV) is a crucial metric for evaluating the effectiveness of marketing campaigns and promotions in driving sales and maximizing return on investment (ROI). It provides retailers with insights into the average amount customers spend per purchase, indicating their purchasing behavior and the success of upselling or cross-selling strategies.

To calculate the average transaction value, you need to determine the total value of transactions conducted within a specified time frame and divide this figure by the total number of transactions during the same period.

For example, let's consider the total value of transactions over the last six months, which amounted to $800,000, with a total of 3,840 transactions.

Average Transaction Value (ATV) = Total transaction value / number of transactions Average Transaction Value (ATV) = $800,000 / 3,840 Average Transaction Value (ATV) = $208.33

Basket size

Basket size, also known as items per transaction, is a metric that measures the average number of units sold per transaction. It provides insights into customer purchasing behavior and the effectiveness of strategies aimed at increasing sales volume. To calculate basket size, divide the total number of units sold by the total number of transactions.

Tracking basket size is particularly valuable for retailers selling across multiple categories or offering complementary products. A larger basket size suggests that your store effectively fulfils shoppers' needs and can indicate success in various initiatives, such as multi-buy promotions.

Increasing basket size involves encouraging customers to consider or purchase more items during each transaction. Strategies for achieving this include:

• Upselling and cross-selling: Suggest related or higher-priced items to customers during their shopping experience.
• Implementing cross-merchandising: Arrange complementary products together in retail displays to encourage additional purchases.
• Promoting impulse purchases: Use strategic placement, promotions, or signage to prompt customers to add more items to their baskets spontaneously.

By focusing on improving basket size, retailers can enhance sales performance and maximize revenue opportunities.

Online sales relative to brick-and-mortar locations

This is a valuable metric for omnichannel retailers, encompassing businesses selling both online and offline. This metric quantifies the impact of brick-and-mortar stores on online sales performance.

To measure this metric, you analyze your ecommerce analytics to determine the proportion of web traffic or revenue generated from areas where you have physical stores. For instance, if you've recently opened a store in Austin, TX, you can assess the influence of this store on your online sales by examining web traffic and sales from users in relevant zip codes, such as those in Austin and its surrounding areas.

In today's retail landscape, consumers frequently utilize multiple channels for shopping. Therefore, it's crucial to understand how your physical retail presence influences your online sales. Simply attributing sales to a single channel is insufficient when customers engage with your brand across various platforms and locations. By measuring the impact of physical retail on digital sales, retailers can gain insights into their omnichannel performance and optimize strategies to enhance overall sales effectiveness.

Year-over-year (YoY) growth

This metric is key for assessing retail business expansion and performance over time. It allows you to compare current revenue with that of the previous year to determine the rate of growth.

To calculate year-over-year revenue growth, use the following equation:

YoY Growth = ((Current Year Revenue - Previous Year Revenue) / Previous Year Revenue) * 100

This equation computes the percentage change in revenue from one year to the next. Positive YoY growth indicates an increase in revenue, while negative growth signifies a decrease. By tracking YoY growth, businesses can evaluate their progress and make informed decisions to drive further growth and success.

Gross and net profit

Gross profit is the difference between revenue and the cost of goods sold (COGS). It represents the amount of money a company makes from its core business activities before deducting other expenses such as operating expenses, taxes, and interest payments. The formula for calculating gross profit is:

Gross Profit = Revenue - Cost of Goods Sold

On the other hand, net profit is the profit remaining after deducting all expenses from revenue, including COGS, operating expenses, taxes, and interest payments. It provides a more comprehensive picture of a company's profitability. The formula for calculating net profit is:

Net Profit = Revenue - (Cost of Goods Sold + Operating Expenses + Taxes + Interest Payments)

Tracking gross and net profit is essential for understanding a company's financial health and performance. Gross profit reveals the profitability of a company's core retail business activities, while net profit reflects the overall profitability after considering all expenses. By monitoring these metrics, businesses can assess their efficiency, profitability, and potential for growth.

Inventory metrics 

Achieving optimal inventory levels can be challenging, but it's entirely achievable with the assistance of the metrics outlined below. These should help you to increase sales in retail. 

Sell-through rate

The sell-through rate is a pivotal metric used by retailers to assess the pace at which they convert their inventory into sales revenue. It indicates how efficiently a retailer is selling products in comparison to the quantity purchased from a manufacturer or supplier.

Retailers rely on sell-through rates to estimate the speed at which products are sold, allowing them to gauge the effectiveness of their inventory management strategies and make informed decisions about purchasing and pricing.

Sell-through rate is calculated by dividing the number of units sold by the number of units received and then multiplying by 100 to express the result as a percentage.

Sell-through Rate = (Units Sold / Units Received) × 100

A high sell-through rate suggests that a retailer is successfully moving inventory quickly. This rapid turnover helps maintain healthy profit margins by reducing the risk of overstocking and the need for markdowns. Conversely, a low sell-through rate indicates that products are not selling as quickly as anticipated. This may signal the need for adjustments in pricing, marketing strategies, or inventory levels to prevent excess stock and maximize profitability.

Inventory turnover

Inventory turnover is a crucial metric that measures how efficiently merchandise moves in and out of your store or webshop. It provides insights into how effectively you're meeting customer demand and achieving a healthy return on investment (ROI).

Cost of Goods Sold (COGs): COGs = (Beginning Inventory + Purchased Inventory) - Ending Inventory

Average Inventory: Average Inventory = (Beginning Inventory + Ending Inventory) / 2

Suppose you want to calculate your inventory turnover for the first quarter of the year. Begin by calculating the COGs. Your inventory was valued at $15,000 at the beginning of the quarter. During the quarter, you purchased inventory worth $60,000; at the end of the quarter, your inventory was valued at $17,000.

• COGs: COGs = ($15,000 + $60,000) - $17,000 COGs = $58,000
• Average Inventory: Average Inventory = ($15,000 + $17,000) / 2 Average Inventory = $16,000

Now that we have both figures, we can calculate the inventory turnover by dividing the COGs by the average inventory:

• Inventory Turnover: Inventory Turnover = $58,000 / $16,000

An inventory turnover of 3.625 indicates that merchandise is sold and restocked approximately 3.625 times within the specified time frame.

While a high inventory turnover can signify efficient inventory management, excessively high turnover may indicate frequent purchases in small quantities, potentially leading to unmet customer demand and decreased sales. It's essential to strike a balance between meeting customer needs and maximizing ROI when evaluating inventory turnover.

TIP: Check out our guide for more information on inventory turnover, and learn what a good inventory turnover ratio for retail is.

Gross Margin Return on Investment (GMROI)

Gross Margin Return on Investment (GMROI) assesses the profit generated from funds invested in stock. It provides insight into the question, "For every dollar invested in inventory, how many dollars did I get back?"

The formula for GMROI is:

GMROI = gross profit / average inventory

GMROI quantifies the profitability of inventory investments. It indicates how effectively your stock is generating profits, helping you determine if your inventory is yielding a return. This metric is commonly used for specific products or categories to identify which merchandise contributes positively to your shop's profitability.

Shrinkage

Shrinkage refers to inventory loss not attributable to actual sales. Common causes include employee theft, shoplifting, administrative errors, and supplier fraud. Shrinkage can be calculated using the formula:

Shrinkage = Ending Inventory Value - Physically Counted Inventory Value

Tracking shrinkage is essential to prevent losses due to theft or administrative errors. It helps maintain vigilance and ensures the integrity of your business operations.

Addressing shrinkage involves implementing strategies tailored to its root causes. Enhancing store security can deter consumer theft, while thorough hiring processes and internal controls can mitigate employee theft. Similarly, tightening administrative procedures and vendor oversight can combat administrative errors and supplier fraud. Identifying and addressing the specific causes of shrinkage is essential for minimizing losses and maintaining profitability.

Customer metrics

Now that you've looked at sales metrics and at inventory metrics, let's take a look at some customer metrics you can measure.

Foot traffic

Foot traffic simply refers to the number of people who enter your store. It's typically measured using people counters and retail analytics software.

Evaluating foot traffic helps assess the effectiveness of your marketing and advertising initiatives. For instance, if you've recently launched a promotional campaign to attract customers to your store, analyzing foot traffic can indicate the success of your efforts. Additionally, foot traffic is a crucial metric for evaluating the impact of your window displays.

Several strategies can be employed to increase foot traffic to your brick-and-mortar store:

• Enhance curb appeal: Improve the visual attractiveness of your storefront to attract passersby.
• Utilize digital tools: Leverage digital platforms such as click-and-collect services, online business listings, and Google's Local Inventory Ads to drive online users to your physical location.
• Host events: Organize special events or promotions to draw in potential customers and create a buzz around your store.
• Customer engagement: Encourage repeat visits and referrals from existing customers through loyalty programs, discounts, and personalized marketing initiatives.

By implementing these strategies, you can effectively increase foot traffic to your store, ultimately leading to greater visibility and potential sales opportunities.

Customer retention rate

Customer retention refers to the practice of retaining individuals as customers who continue to make purchases from you after their initial conversion.

Customer retention is vital for building a loyal customer base. You want customers who not only make repeat purchases but also advocate for your brand, driving word-of-mouth referrals and contributing to long-term profitability.

To calculate customer retention rate, you'll need the following information:

• The number of customers at the start of a period (S)
• The number of customers at the end of a period (E)
• The number of new customers acquired over the same period (N)

Using this information, the formula for calculating the customer retention rate is:

Customer Retention Rate = ((E - N) / S) * 100

Let's assume your average customer makes purchases at least three times per year, and you're using a year as the standard period. At the end of the year, you had a total of 400 customers, with 200 of them being new users. You started the year with 310 customers.

Customer Retention Rate = ((400 - 200) / 310)  100 Customer Retention Rate = (200 / 310)  100 Customer Retention Rate = 0.645 * 100 Customer Retention Rate = 64.5%

For that year, your business achieved a customer retention rate of 64.5%.

How can a retail POS system help with your KPIs?

A robust retail Point of Sale (POS) system can significantly contribute to tracking and improving KPIs in your retail business. Here's how:

• Data tracking and analysis: A modern retail POS system collects and organizes vast amounts of transactional data, including sales, inventory levels, customer information, and more. This data can be analyzed to derive valuable insights into various KPIs, such as sales within retail performance, inventory turnover, and customer retention.
• Real-time reporting: Retail POS systems offer real-time reporting capabilities, allowing you to access up-to-date information on your KPIs at any time. With instant access to sales metrics, inventory levels, and customer data, you can make informed decisions promptly to optimize business operations.
• Customizable dashboards: Many retail POS systems provide customizable dashboards that enable you to tailor KPI displays according to your specific business needs. You can prioritize metrics relevant to your goals and monitor them in real time, ensuring a clear focus on areas that require attention.
• Inventory management: Effective inventory management is essential for maintaining optimal stock levels and minimizing stockouts or excess inventory. A retail POS system can help track inventory movements, identify fast-selling products, and generate alerts for low stock levels, contributing to improved inventory turnover and sales metrics.
• Customer Relationship Management (CRM): Customer retention is a critical KPI for retail businesses. A retail POS system with built-in CRM features allows you to track customer purchase history, preferences, and behaviors. By leveraging this information, you can implement targeted marketing campaigns, loyalty programs, and personalized promotions to enhance customer retention rates.
• Integration with analytics tools: Many retail POS systems offer integrations with third-party analytics tools or provide built-in analytics features. These integrations enable advanced data analysis, trend identification, and forecasting, empowering you to make data-driven decisions to drive business growth and optimize KPI performance.

Final thoughts

Keeping a finger on the pulse of your retail business is key to steering it towards success. And that's where KPIs come into play. These metrics are like your business's GPS, guiding you through the twists and turns of sales, inventory, customer loyalty, and more.

You don't have to go it alone. Investing in a modern retail Point of Sale (POS) system is like having a trusty sidekick on your retail journey. It crunches the numbers, provides real-time insights, and even offers customizable dashboards to keep you on track.

Armed with these metrics and the right tools, you're ready to measure success in business. Keep your eyes on the prize, stay agile, and watch your business flourish in the ever-evolving retail landscape.