15 Essential KPIs In Retail (All You Need To Know)

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What Is A KPI In Retail

In retail, KPI refers to quantifiable metrics used to measure a retail company’s performance.

KPI is an acronym for Key Performance Indicator which essentially means important performance metrics.

The idea of keeping track of various KPIs or performance metrics is to ensure that your retail business is performing as expected and is moving in the right direction.

When keeping track of key performance metrics in retail, company owners and decision-makers can make sure that they are running their businesses objectively and aligned with their goals.

For example, you can track KPIs relating to your sales, conversion, profit margin, inventory management, and so on.

Having a good understanding of how your retail business is doing will help you make decisions today allowing you to steer the organization in the right direction.

Recommended article: What is a cash conversion cycle

15 Essential KPI In Retail

1- Sales Per Square Foot

Sales Per Square Foot is a measure of how much sales you have generated in relation to the physical square feet of space available in your store.

Retailers with a physical space must arrange their store layout in such a way as to maximize sales.

To track your sales in relation to the space you are using, you can see how much money you are generating for every square foot of space.

The more you can generate sales per square foot of space, the more profitable you can become.

2- Sales Per Employee

Sales per employee is a measure of your total sales in relation to the number of employees you have working for you.

If you are in the retail business, you should track how well your business is doing based on the number of employees on your payroll.

The sales per employee is a KPI that will tell you how much money you are making for each employee in your business.

The more you can generate revenues per employee, the more your business is profitable and your employees are performing well.

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3- Conversion Rate

Conversion rate refers to the number of leads or potential customers that you attract to your online store or brick-and-mortar store who end up buying from you.

One KPI that is measured often in retail is the number of users or potential customers that end up buying or spending money.

Conversion rate gives you a measure of how many visitors are turned into paying customers over a period of time.

The more you have visitors making purchases (or converting), the more profitable your business will be.

4- Shrinkage

In retail, there is an important KPI that you should track called shrinkage.

Shrinkage refers to the loss of inventory attributed to any factor other than sales.

For example, shrinkage in retail can include employee errors, administration errors, shoplifting, supplier errors, employee theft, and so on.

The idea is to keep shrinkage as low as possible so you can sell your goods and earn a profit.

5- Foot Traffic

Foot traffic is an important KPI in retail as it is a measure of how many people are walking into your store during a given period.

Foot traffic is important as you must be able to have potential customers walk into your store before you can generate sales.

Retail companies may track foot traffic to have an overall understanding of how many people are coming into their stores, but can also use this metric to track the impact of advertisements and various marketing campaigns.

You can track the total number of customers walking into your store per hour, daily, weekly, monthly, or for different periods.

6- Customer Retention

Customer retention is a very important KPI for retail businesses.

In essence, customer retention tells you how many of your customers come back to do business with you again.

Not only should you attract new clients to remain profitable, but you should also make sure that the customers you already have are happy and continue doing business with you.

You calculate customer retention by taking the total customers at the end of a period divided by the total customers at the beginning of the period and where you exclude new customers.

Recommended article: What is a retention ratio

7- Customer Satisfaction

Every business should be concerned with its level of customer satisfaction.

The more customers like doing business with a company and enjoy their interactions, the more they will want to continue doing business with you.

Customer satisfaction can be attributed to many factors such as the quality of the products sold, interaction with staff, customer dwell time, store layout, and many other factors.

Retail companies will evaluate their customer satisfaction levels by having their customers fill out a survey where they rank the companies on different aspects relating to their products and services.

The objective should be to continually improve your customer satisfaction levels.

8- Shopper Dwell Time

Shopper dwell time refers to the amount of time customers are spending time in your physical store or on your website.

Statistically, the more customers spend time in a store or looking at a product, the more likely it is that they will end up making a purchase.

Dwell time can provide retail businesses with important clues as to where the customers are spending time and what is attracting their attention.

The more retailers are able to increase the customer dwell time, the more chances they will have to generate a sale.

9- Inventory Turnover

Inventory turnover is a very important metric in retail where you are assessing how much stock is used in a given period of time.

The inventory turnover formula is the cost of goods sold divided by the average inventory for the period analyzed.

If your inventory turnover ratio is too low, it means that you are not selling your inventory fast enough.

On the other hand, if your inventory turnover ratio is very high, it means that you must make sure you speed up the rate at which you replenish your inventory to avoid leaving your shelves empty.

Recommended article: What is inventory turnover ratio

10- Gross Margin Return on Investment

The Gross Margin Return on Investment is a KPI that measures how much revenue you generated from the sale of your inventory for a given period of time.

To calculate this, you need to find your average inventory cost.

Then you need to calculate your gross margin for the item being analyzed.

Then, the GMROI can be calculated by dividing sales by the average cost of inventory and multiplying that sum by the gross margin percentage.

11- Sell-Through

The sell-through is a retail KPI where you are assessing how many units you were able to sell from the total number of units you had in inventory at the beginning of a given period.

Sell-through is a measure where you divide the total number of units sold by the number of units you had in your inventory at the beginning of the period.

This measure is essentially used to see how many units you are selling from your inventory and how many units you are purchasing.

12- Online vs In-Store Sales

With many retailers selling both in their brick-and-mortar stores and online, it’s important to assess their performance one in relation to the other.

The online vs in-store sales comparision allows you to see how much revenue you are generating online versus in-store.

Based on the benchmarks in your particular niche and your objectives, you can then better determine where your business will need further improvement.

13- Click-Through Rate

The click-through rate is strictly an online KPI and it’s part of this list as most retailers now have an online presence.

Click-through rate tells you how many users have clicked on your online advertisements in relation to the number of advertisement impressions that were made.

The more your click-through rate is high, the better your ads are performing.

You calculate your click-through rate by taking your total number of clicks divided by the total number of impressions.

Recommended article: What is return on sales

14- Year Over Year Growth

Year-over-year growth is an essential metric used by many companies, particularly in retail.

The objective is to see how well you are doing by evaluating your performance this year with the year prior.

If your sales and revenues are growing, year-over-year, it means that your business is performing well and you should continue with your momentum.

However, if your business revenues are declining year-over-year, there’s cause for concern.

15- Average Transaction Value

In retail, the average transaction value is a measure telling you how much your customer is spending per transaction.

The higher your average transaction value, the more your customers are buying every time they come into your store.

To calculate the average transaction value, you’ll need to take your total sales divided by the total number of transactions for a given period.

Recommended article: What is return on investment

Takeaways 

So there you have it folks!

Retail businesses are organizations that sell goods and services to consumers.

Just like any other business, retail companies should objectively assess their performance and make changes to their operations so they can improve over time and become more profitable.

In this post, I have shared with you fifteen of the most important retail KPIs, or key performance indicators, that companies in the retail industry should track.

The more you know about your business, the more you can make informed business decisions to protect your market share and beat the competition.

Now that you know the fundamental retail KPIs, good luck with your research!

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