Have you been keeping track of those important performance indicators? The metrics that matter Your KPIs provide vital indicators that will assist you build on known weaknesses and strengths, manage by exception and get a pulse on your true return […]
Have you been keeping track of those important performance indicators?
The metrics that matter
Your KPIs provide vital indicators that will assist you build on known weaknesses and strengths, manage by exception and get a pulse on your true return on your investment. However, there are many metrics it can be tricky to know which ones to concentrate on. Retail can be especially overwhelming in this regard since there’s an almost endless quantity of industry certain metrics which have emerged. Footfall amounts, conversion rates, average basket size, inventory turnover ratios — the list is endless.
Whilst they’re all useful, there’s a need to operate within a hierarchy of KPIs. As many retail metrics may provide more microscopic insights as soon as you’ve identified an investigation area, the important metrics are those that will provide you a quick but detailed health check on whether your company is going in the wrong or right direction with time.
A ‘top down’ approach
The ideal place to begin is with a picture of your total company, then work down to recognize good, average and poor performance areas for further attention and analysis. To provide full flexibility on your analytics, you will want to be able to divide your metrics:
- Across the whole business
- From store/channel (for example your eCommerce store to compare its own functionality )
- byproduct category
- byproduct lineup
- By individual product
- By customer segment.
From here, you can delve into various comparative analyses like budget vs. actual, periodic (e.g. month over month, previous year), shop vs. shop and product vs. product effects. Your ability to create appropriate reporting will depend upon having the ideal systems to capture, organise and analyse information. This frequently requires extensive preparation to configure your information structure in the proper way so that you can work to the level of granularity you need.
Main metrics: To see the wood for the trees
Ideally, you’ll have access to real-time and dynamic dashboards and reports for each of these main metrics as a way to drill down into various amounts for each of them on a daily, weekly, monthly, quarterly and annual basis.
Set 1: Gain, or ‘Is the juice worth the squeeze?’
Your margins (and therefore profit) are a central focus of most businesses. These influence what your take-home salary may be and what could be invested back into the company. Metrics help to discover the perfect balance for merchandise margins and establish any unproductive categories.
Having real time awareness of your costs is crucial. Pay attention to some unexpected variances to forecasted costs, and you will have the ability to spot and nip any loopholes in the bud.
Profitability, or Return on Investment
While complete profit expressed in dollar terms is valuable, you also should focus on ROI as a proportion of the funds spent. Your profitability metrics could identify smaller-cost areas which are highly lucrative, which with a few extra investment may be significant contributors to your yields.
Customer Lifetime Worth and Cost to Acquire:
What are your clients’ repeat visits values, and what does it cost to get them? Focusing on who provides you with the most revenue and will allow you to take advantage of your retail potential.
Set 2: Cash stream, or ‘Can the motor continue running?’
With so much retail business involving laybys, credit purchases and so forth, you’ll have to get a good idea of your cash flow at any 1 time. It is important to have an awareness of incoming and outgoing money in an overall sense, but also to regularly monitor in the lower levels of this hierarchy. Seeing cash flow by product lines, products or customer segments, as an instance, will let you know exactly what participation (or drain) they’re making to your general flow of funds.
Secondary metrics: Identifying root causes
As soon as you have found an area that’s showing a place of danger or chance, the next step is to dig deeper into the causes. This is where additional metrics can come in use, such as:
- Average purchase value/basket dimensions
- Conversion rates (traffic vs. buyers)
- Frequency of visit
- Stock turnover ratios
- Costs including labor and materials spent in each business area, like sourcing, inventory, sales, marketing, service and fulfilment.
Reliable reporting depends on reliable systems
Many retailers discover the hard way that their software systems do not have the required data configuration settings or reporting functionality to monitor these crucial metrics and KPIs. Are you able to get exactly what you need at the click of a button? For examples and ideas of how simple and insightful these sorts of metrics reports must be, arrange a complimentary consultation with one of our retail specialists now.
►►► cloud-based POS software compatible with multiple platforms including Magento, Shopify & Shopify Plus, and BigCommerce.