How Retailers Measure Their Success

For many of us, January is synonymous with reflecting on the past and setting new personal goals. It’s the same for retailers: once inventory has been completed, companies use these first few weeks of the new year to reflect on data from previous months so they can assess progress made on goals and set new goals. Retailers decide which types of data to measure after defining their objectives; examples of these include reaching a certain sales volume or opening a specific number of new locations by a certain date. Once their objectives are defined, leaders then create strategies to reach them and measure their success on a monthly basis using specific metrics, also referred to as “key performance indicators” (KPIs).

KPIs vary by retailer, but most use some or all of the following data points to measure the business’s success:

• SALES GROWTH: This is defined as the change in revenue over a fixed period of time. It’s calculated by subtracting the net sales of the prior period from that of the current period, dividing the result by the net sales of the prior period, and multiplying by 100.

• SALES PER SQUARE FOOT: This is defined as a store’s average revenue for every foot of retail space. It’s calculated by dividing the total sales by the store’s total square feet of retail space.

• GROSS MARGINS RETURN ON INVESTMENT: This is defined as a seller’s return on every unit of currency spent on inventory. It’s calculated by dividing the gross margin by the average inventory cost.

AVERAGE TRANSACTION VALUE: This is defined as the average total amount spent by customers in a single transaction. It’s calculated by dividing the total value of all transactions by the total quantity of transactions.

• CUSTOMER RETENTION: This is defined as the rate at which customers return to a business in a given period of time. It’s calculated by subtracting the total new customers from the total ending customers, dividing by the total beginning customers, and multiplying by 100.

• CONVERSION RATE: This is defined as the percentage of users who have completed a purchase. It’s calculated by dividing the total number of people who made a purchase by the total number of people who entered the store and multiplying by 100.

• TRAFFIC: This is defined as the total number of customers who entered the store or visited a website. It’s calculated by adding up the total number of customers who did so.

• INVENTORY TURNOVER: This is defined as the number of times inventory is sold in a certain time period. It’s calculated by dividing the cost of goods by the average inventory for the same period.

Once all of this data is collected, it’s typically compiled into various reports and distributed to the business’s leadership team, who in turn use them to make improvements. This process of data analysis ultimately helps the business do things such as reaching more customers, boosting employee morale, and cost-effectively shrinking its inventory while increasing sales. It’s a vital part of business growth, and in the end, growth is the ultimate goal for most. Now you know a little more about how it happens!

This article was originally published in the January/February 2023 issue of our bi-monthly newsletter, The Morsel. If you’d like to read more stories like this one and stay up to date on the latest co-op news and events, pick up a print copy in-store on your next grocery run or find more news on our website here.

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