Tracking financial metrics in retail: the top 5

Tracking financial metrics in retail: the top 5

More sales, more customers, more profits! All retailers would like more. The trick is deciding what to focus on and then figuring out what will give you the best return on the time, money and effort you invest.

It can be easy to only track your go-to metrics and overlook the other data which is right under your nose. Retail, in particular, is data rich with constant tracking on so many levels. A lot of business owners lose out as they do not know what to look for or if they do they struggle to find a way to bring the data together.

Some of these following metrics may already be in your go-to set of metrics, if not, then let’s get familiar with five key metrics for retail businesses.

Stock turn

Products come in all shapes and sizes but one thing remains true and that is there must be something on the shelves to sell. Stock is a huge part of your retail operation. From figuring out what to order to finding suppliers, placing orders on time and managing stock flow through the store. Most retailers have a good grip on this process but many fail to track an important metric: stock turn. So what does it actually mean?

In simple terms, it is the rate at which stock is ‘turned over’ in the store. So if you find yourself replenishing an item frequently that item has a high turnover. If you rarely need to order it then it has a low turnover. In most cases, at the end of the period, the stock is sold so why is the turnover rate important?

To buy stock, you need cash, once you buy the stock that money is then tied up in that product until it is sold. If something has a very low turn rate it means it reduces your cashflow and essentially ties up funds on your shelves. Figuring out the worst performing items and reducing your number of lines on that basis can improve your cashflow and boost your bottom line.

Shrinkage

Of the many metrics available to retailers shrinkage is often overlooked. A broken box here, a lost item there, maybe even some theft in your store. As individual events, these can seem insignificant in terms of cost. The reality is, without tracking these losses do you really know what it is costing you. Often when all of these factors are combined the actual cost can shock retailers.

There are plenty of things you can do to combat shrinkage such as changes in procedures, order checking, security and so on. If managed properly it can offer a significant saving without any major investment.

Gross margin

Everyone in business needs to make a profit in order to stay in business. It can be all too easy to be tricked into thinking all is well by only looking at revenue and cash flow. Tracking Gross Margin ensures you are actually turning a profit.

Gross margin is defined as: total sales revenue minus the cost of goods sold, divided by the total sales revenue, expressed as a percentage.

Staying on top of gross margin allows you to intervene if margins are shrinking or even if losses are occurring. Having this information available as close to real-time as possible means you can act fast and avoid letting losses continue only to find out weeks or months down the line.

Cashflow

There is very little a business of any kind can do without cash. This is especially true of retail businesses who need cash daily to keep the doors open. You may have a seasonal business or be impacted by other events which result in cash-rich and cash-poor periods in your store. Being able to track these trends and understand when they will occur allows you to stay ahead and make plans so your business is always liquid. This avoids downtime, stress and potential losses due to lost sales.

Average sale value

A customer enters your store and makes a purchase. That’s a successful sale, or is it? As a retailer marketing is often focused on attracting new customers which is in itself great. However, what would be the impact on your profit if every customer who made a purchase in your store spent 10 per cent more on average then they do now. Ten per cent might not sound amazing but multiplied across your entire customer base that could be huge.

Tracking the average sales value and then finding ways to improve it is vital. It could be as simple as adding special offers or multibuys, whatever works. The key is to increase the average sale value and add to your revenue.

What metrics do you find the most useful in your business?