The amount of KPI-s can be large and although every company might choose to use a slightly different set of KPI-s, there are certain measurements which are useful for almost all retail companies. Below is a short summary of the KPI-s which allow to measure the effectiveness and set targets for finance, sales, customer service, inventory management and human resources.
Cash Conversion Cycle (CCC)Cash Conversion Cycle shows how long it takes to turn money invested in resources back into cash flow. Cash conversion cycle is calculated by the formula:
(Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding)
Gross MarginGross Margin is traditionally calculated as sales revenue minus COGS. It can be considered even more important metric than sales, because it shows how much value is business creating.
Inventory Management and Purchasing KPI-s
Stock Turnover rateInventory turnover rate is an indicator how quickly you are able to sell your inventory. It measures the number of times the average inventory is sold during a year. Increasing inventory turnover has a positive effect on cash flow.
GMROIGMROI measures the profitability of investments in inventories.
Calculated with a formula: gross margin / average inventory value (at cost)
Customer Service and Sales KPIs
SalesSales is the most common retail measurement. It can be measured across geographical locations, retail stores, product categories, different time periods etc.
It should be understood that sales is the result or lagging KPI. You can impact sales by leading KPI-s like footfall, conversion rates and average purchase. That’s why we advise to set targets based on leading KPI-s which employees can directly influence.
Incremental SalesMeasures how much extra sales did the marketing campaign resulted. Measuring the effectiveness of promotional activities is the common challenge for retailers.
FootfallAlso known as people or shopper counting. Measures the number of people who enter the store. Measuring footfall is important for retailers and allows to calculate conversion rates.
Comparing the forecasted shopper count with actuals can provide insight on your marketing effectiveness, store visuals and competitor actions.
Average Purchase ValueThis KPI shows how much customers spend during each purchase. Anlyzing average purchase value across customer segments can provide important insight for sales and marketing. Improving average purchase value through targeted marketing, upselling and cross-selling will directly improve the sales results.
Conversion RateConversion rate is calculated as a ratio of number of purchases to shopper count. This KPI shows the effectiveness of your sales personnel as well as store layout, merchandising and sale offers.
Establishing conversion rate improvement as a goal for store personnel can align them towards improving customer service and finding flaws in store layout.
Sales per square Meter (Foot)Sales per square metre measures how much sales is generated from each square metre in a store location. This can provide important insight for the effectiveness of store layout and sales personnel. Identifying low-performing stores and improving their sales is a common logic behind improving the company’s results.
Employee efficiencyHow much does 1 euro spent on labor generates gross margin or sales revenues.
It is calculated with a formula: Gross Margin / Labor Costs
Staff turnoverFinding and training new employees is a large cost, so retailers should measure the staff turnover.
Comparison measurementsFor analysis, it’s usually required to compare a KPI value against some benchmark. Most common comparisons in retail are:
- Actual vs Budget vs Forecast
- vs last year same month (Y-o-Y or YTD)