KPI stands for Key performance indicator. A KPI is an indicator that can be evaluated and monitored to show the performance of a business. Depending on the industry and the activity of the business, there are different KPIs that need to be monitored.
What are the most important KPIs for retail?
Retail is one of the industries that has many KPIs to monitor in order to know how business is really going. For retailers to be sure of their progress, they need to keep an eye on these KPIs:
1. Sales per square foot
This is the most important KPI for retailers. It is an indicator for brick and mortar stores exclusively. It doesn’t apply to eCommerce platforms because they don’t have a physical location.
The sales per square foot is calculated with this formula:
Total net sales / Total square foot
This KPI shows just how effectively you are using the space you have. The bigger the store, the more sales you need to have.
2. Gross margins return on investment (GMROI)
GMROI shows the profit you made from the amount you invested in product stock. This means that for every dollar you spend on the stock with this KPI you can see how many dollars you get back.
The formula for gross margins return on investment is:
Total gross profit / Average inventory cost
3. Average transaction value
This is a great way to see how much a customer spends on average in your store. This doesn’t show you exactly how much each customer spends, but it paints an overall picture.
The formula for calculating average transaction value is:
Total sales from transactions / Total distinct count of transactions
4. Customer retention rate
The customer retention rate is an important KPI for both physical retailers and eCommerce platforms. It shows for how long your customers will show from your store.
To calculate it you will need to use this formula:
((Total distinct customers at end of period) - (Total new distinct customers acquired during the period)) / (Total distinct customers at the start of period) x 100
5. Foot traffic
Foot traffic is another important KPI for brick and mortar stores. It’s also a great indicator of brand awareness. All you need to calculate foot traffic is the total store entrances.