Key performance indicators, also known as KPIs, are the essential metrics that every Retailer needs to use to understand the situation of the company. Numbers don’t lie, and KPIs can help you see which area of the business is improving, where targets are not being reached, and – most important of all – where you need to make changes to ensure the business continues to grow.
There are hundreds of KPIs, but which are the most important ones when planning for the future? Are some KPIs more valuable than others for Retailers? Here are the 10 key performance indicators Retailers need to track to succeed in the new Retail.
This represents the quantity of stock in units and in excess cost value to meet the projected demand based on the parameters established by the company. It helps us identify the products that are surplus to the store’s needs and prescribes possible recommendations to be made.
Overstock is calculated at the SKU-store level. For example, a store may have an overstock while simultaneously placing a replenishment order from different SKUs.
This is one of the cornerstones of Retail. It is calculated as the total number of commercial transactions made: in other words, the sum of all sales at the sale value in a given period of time.
This indicator on its own is not relevant. It has to be analysed in the context of all indicators to understand the origin of a problem and know how to act.
One of the main goals of Retail is to maximise the volume of quality transactions. This indicator offers a graphical representation of the volume of commercial operations carried out to achieve the turnover.
If we can maximise the volume of transactions without affecting the average sales price per transaction or the number of items included in an average ticket (UPT), we can maximise the company’s turnover.
This refers to a customer’s average spending per ticket in a given period of time. It is calculated by dividing total sales by total tickets (excluding returns).
As a quality target set by the company, basket size is tracked to compare and analyse sales trends.
This refers to the difference between income (excluding taxes) and the cost value of goods.
When shown as an economic amount, it refers to the contribution. When expressed as a percentage, it means how much that difference represents over the cost and therefore refers to the percentage of gross margin obtained.
A company’s main goal is to maximise its margins, because the same turnover can yield higher margins with more efficient management of the stock cost.
DV (Design Variation)
This is a percentage expressing the number of models with sales over the company’s total models in a given period of time. The analysis is performed at root code level (style + colour).
The benefit of this indicator is that it measures the success of the mix in a collection over a period of time. The ideal ratio is 100%, since we expect to sell at least one unit of each model present in a store.
This is the inverse of coverage. It shows the number of times an item is renewed in the stock in a given period of time. It compares purchase management with stock quality.
This is the acronym of Gross Margin Return on Inventory Investment, which measures the productivity of inventory investment. It indicates the amount of gross margin that is recovered for each euro invested in inventory. The result should be higher than 100% since we expect to recover at least the same amount we invested.
This expresses as a percentage the progression of the potential sales rate of items that fail to meet the sales target due to lack of stock.
It quantifies lost sales due to insufficient stock to meet the demand. It is therefore a guide for correcting the stock per store or increasing the depth of purchase. In other words, it operates as an alert.
Created by Analyticalways, this indicator tell us whether a company is generally efficient. It compares the DV, TRNand GMROII levels with their individual targets, therefore providing a clear picture of the distance to be covered to reach those targets. The distances between the target and result of each indicator are averaged out to create what is known as the stock management efficiency ratio.
If we maximise the stock turnover, collection mix efficiency and the margins, we will maximise the stock management efficiency.
To conclude, the more we know about the state of our business, the better we will manage it. These 10 indicators guarantee control and are available to any company that wants to increase its management efficiency.