Just because you have a good product and great customer service, that does not mean you will succeed in the retail business; one must know your numbers to become profitable. Below are 8 financial business metrics you need to know about in your retailing business. knowing these ten essential metrics will help get a deeper understanding of how healthy or sick the business is and also best at identifying areas needing intervention.
- Each percentage point of Gross Profit Margin means that you have one percent left over as profit after all costs incurred in manufacturing the product are covered. So to work out each percentage, divide the value in gross profit by total revenue and multiply that number by 100. Most retail margins that are considered healthy fall somewhere between 20-50% depending on your segment.
- This is a Space Productivity measure again, which calculates how much sales you have gained in each square foot of your retail floor space. This allows them to determine if you are making the most of your property investment and will influence whether or not to expand or downsize or invest elsewhere.
- Average Transaction Value: how much customers spend per visit. Use this as a monthly measure, so you can track trends and the efficacy of your upselling tactics or promotions.
Inventory Management
- This is an indication of Inventory Turnover Ratio i.e Quantity you sold from stock in what time. Calculate using cost of goods sold divided by average inventory value. Higher turnover usually indicates better cash flow and faster stock turn.
- Stock-to-Sales Ratio: A calculation that measures how many times a company sells and replaces its stock of goods over a certain period. A high ratio is a sign of overstock, while too low may mean that missed sales opportunities.
- Quantify stock loss from any combination of theft, damage or data entry errors. Do a comparison of actual stock against recorded inventory levels. The figure stands at between 1-2% for most industries.
Customer Insights
- The first thing you should look into is customer acquisition. This shows how much it costs to acquire customers through marketing and advertising efforts. This should be much less than your customer lifetime value. For help from Business Accountants, visit https://www.hazlewoods.co.uk/expertise/business-accountants
- Customer Retention Rate: This KPI measures loyalty by determining how many customers return to purchase again within a specific time frame. Keeping customers is much cheaper than looking for new ones.
Taking Action
Revisit these metrics on a monthly basis to identify trends sooner. Decline in gross margins could signal pricing pressure or rising costs. A low inventory turnover could mean you are making poor purchases or your customers’ tastes have changed.
