A Key Performance Indicator (KPI) is a measurement of business performance and health. The best KPIs help you make decisions and take action towards achieving your goals. At a minimum, we recommend you review these Top 5 KPIs for Actionable Retail Decisions weekly, monthly, quarterly, and annually.
- Gross Margin Dollars: Gross Margin = Sales – Costs Paid
Always review total units and dollars sold. Go deeper by analyzing Gross Margin to understand sales profitability. Review sales and Gross Margin by brand, category, style, gender, or any segment of your business. Compare results to plan, last week, or last year to see program performing. If you’re beating plan, buy more. If you’re below plan, create a plan to move the inventory (e.g., promotions or return to vendor (RTV)).
- Average Transaction Value (ATV): ATV = total revenue / number of transactions
ATV is the average amount your customer spends per transaction. Increasing ATV is accomplished by suggesting a better quality and usually higher priced item (upselling) or a complementary item (cross selling) to go with a purchase. To increase sales, you either need more customers or you need to increase how much each customer spends.
- Gross Margin Return on Investment (GMROI); GMROI = Gross Margin $ / Average Inventory Cost
It’s important you know the return on your investment in inventory. GMROI tells you. If your GMROI is greater than $1, you are making money. How do you increase your GMROI?
- Increase the price
- Lower your cost of goods
- Increase inventory turnover
- Sell-Thru: Sell-Thru % = Units Sold / Units Received
Sell-Thru rate measures how much of your inventory was sold during a period of time. Measure Sell-Thru at any level: category, brand, style, sku. Sell-thru should be reviewed alongside Gross Margin. If an item had a high sell-thru percentage, was the item at regular price or on sale? If regular price, buy more. If the item was discounted, then do not buy more because your strategy to move the inventory is working.
- Inventory Turnover: Turn = Net Sales / Average Retail Stock
Inventory turnover, or “turn,” shows you how many times your inventory sells through in a measured period. The faster the turn, the more inventory you will need to buy to not miss out on sales opportunities. A slow turn results in stale, marked down products, and lower Gross Margin and profit.
Track inventory turn monthly and review it quarterly and annually. Measuring turn throughout the year will help you manage cash flow.
Make the time to use these Top 5 KPIs to better understand your business performance and health. If you don’t, you may not know you have a problem and you’ll certainly miss out obvious opportunities for improvement.
Contact our retail expert, Keith Keokuk, any time to learn more about RICS and how these features will work for you: keith.keokuk@ricssoftware.com, 317-275-5941.
BRA note: We are very pleased to mention that RICS Software is a BRA Supporting Vendor Partner who is offering fifty percent (50%) off all on-boarding fees and fifty percent (50%) monthly fees for the first twelve (12) months for all BRA Distinguished Retail Members that begin onboarding before the end of the year. Be sure to mention BRA when connecting with Keith and the solid people behind this outstanding resource.
– Doug Works, Executive Director BRA
If you are not yet a BRA Retail Member, you can easily opt in to either Regular (no cost) or Distinguished ($100/yr.) Membership via this super simple join form