What is KPI in Retail?
A KPI is a Key Performance Metric, a KPI in retail is a defined and quantifiable measure that is used to assess the performance of a retail business. These are performance metrics that can be used in various ways to monitor and track retail performance.
While running a retail business, it’s easy to lose sight of goals and performance. Business owners have to keep track of a number of aspects such as invoices, inventory, payments, salaries, etc.
When you get caught in the daily grind, your long-term goals can easily get nudged to the sidelines.
Business owners may not even notice a gradual drop in their retail business’ performance until it is too late to fix things.
That’s why it is important to keep track of essential retail KPIs. KPI stands for key performance indicator and is a form of retail metrics used to track the performance to determine if your retail business is on track towards its goals and achieving the overall strategy.
That's why we created our Free Retail Strategy Template, for you to try out what we're all about!
We've been compiling everything you need to know about KPIs as part of our KPI examples mini-series.
Retail KPI Examples
This post is a small supplement to that series, which provides 12 of the most common retail KPIs, we also include a brief description of why you may want to use each.
We suggest you pick at least 2 KPIs for each of your key business objectives.
Retail KPIs For Understanding Sales Metrics
Sales bring in revenue so they’re one of the most important and basic metrics to track. Modern sales are quite complex because they can be generated through different channels, and there are several factors involved.
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Here’s a look at some of the most important KPIs in this category:
Sales Per Square Foot
Retail business owners with a physical sales area put a lot of effort into product presentation. This can influence the customer’s purchase decision, which is why it is a good idea to track sales per square foot.
You can calculate this by dividing your net sales by the sales space. This will give you a clear idea of how much it costs to maintain your retail space and the amount of revenue that space generates.
KPI Example: Increase sales per square foot by 20% by 31/08/2024
Sales Per Employee
Tracking sales per employee can help you keep track of employee performance, investment, and revenue generated by the staff. Data from this metric can help you make decisions regarding training, compensation, promotions, and hiring.
Formula: Net revenue/number of employees
KPI Example: Increase the number of sales per employee to 7 per day by 31/12/2024
Every customer that steps through your door or hits your site costs some money and has the potential to contribute to your revenue. It is important to keep track of how many visits convert to sales.
You can determine this by dividing the total number of sales by the number of visitors. This gives you an insight into the efficacy of your sales process.
KPI Example: Increase conversion rate to 5% by 30/06/2024
These are the key performance indicators under the Sales category. If you keep track of actual sales, you know how much revenue is flowing in and can make business decisions accordingly.
Retail KPIs For Understanding Customer Metrics
Retail businesses depend on customers and need to keep them satisfied. Customer behavior determines just how successful particular retail business is. There are a few important customer metrics to look at, depending on the type of business you have:
This tracks how many people walk into your store. Foot traffic also helps you determine if particular locations, ad campaigns, or products are successful. For example, if you open a branch in a different location and don’t get as much traffic as other locations do, it might not be the best place for your business.
Foot traffic provides a lot of information regarding customer behavior and response. This article does a great job of walking you through foot traffic and the various ways to measure it.
KPI Example: Increase daily foot traffic to 150 by 31/03/2024
Most business owners know that repeat customers are the foundation of any retail store. New customers cost the most to acquire and may not always return to make another purchase.
That’s why it is important to track customer retention. It will tell you whether your business is able to hang onto customers and also help you make the right decisions to improve retention.
Formula: Total customers at the end of a period divided by total customers at the start. Then multiply by 100 (do not count NEW customers in that period).
KPI Example: Increase customer retention by 20% before 31/12/2024
This metric correlates with retention since the level of service and/or quality of goods sold will have a direct effect on retention and foot traffic. This can be measured with NPS score and/or regular surveys delivered to the customers after the transaction (we've covered NPS in this article).
You can also look at your website analytics to gain a good insight into customer behavior. You can track things like bounce rates, dwell times, and other similar factors on the platform.
NPS example: On a scale of 0 to 10, how likely is it that you would recommend our company, product, or service to a friend or colleague?
KPI Example: Increase NPS by 15 by 30/09/2024
Retail KPIs For Understanding Inventory Metrics
Every retail business must maintain adequate inventory to support demand. Inventory is one of the most important and expensive investments for retail businesses, which is why it is vital to keep track of it. Here’s a look at some of the most important inventory KPIs to take note of:
You can determine inventory turnover by using this formula – the cost of goods sold/average inventory.
This will give you a clear idea of how much stock is used up in a given period. If this figure is too low, you’re not selling enough of the inventory and are at risk of overstocking or deadstock. If this figure is too high, you may be selling out because you aren’t stocking enough products.
KPI Example: Decrease inventory turnover by 5 days by 31/12/2024
Gross Margin Return on Investment
GMROI gives you the real value of your inventory. It tells you how much revenue your inventory has generated over a fixed period, which can help determine if your business is making a profit.
As this metric specifically measures different products and categories, it is easy to understand which products are profitable and which aren’t. Here's a detailed explanation and formulation of GMROI.
KPI Example: Increase GMROI to 2.5 by 31/10/2024
When you divide the number of units sold by the starting inventory and multiply that by 100, you get the sell-through percentage.
This gives you an indication of how much of your inventory is being sold compared to how much you purchased. It will also help you understand which products are performing well and which ones may need further consideration.
KPI Example: Increase the sell-through rate by 15% by 30/06/2024
Retail KPIs For Understanding Growth Metrics
Every business expands and evolves over time. Keeping track of growth can help you channel your resources effectively and determine where your business has the potential to improve.
There are several ways to track growth, but the two most popular options are:
Online and "Bricks and Mortar" Sales
Most businesses have started to invest in online platforms to keep up with the competition. If you have an e-commerce store and/or a bricks-and-mortar store, and an online marketing campaign, this is an important metric to track.
You can compare the success of your online platform with your bricks-and-mortar platform and direct resources accordingly. Attribution will play a key role when measuring this KPI.
KPI example: Increase in-store sales through digital campaigns by 25% by 30/09/2024
Online to Real Life Traffic and Conversion
It is a good idea to track how much traffic your online marketing strategies are generating for your offline stores. This is especially crucial if you’re running a local SEO campaign.
You can keep an eye on the traffic generated by paid and organic leads, calls from click-to-call buttons, etc. This will help you optimize your campaign effectively.
KPI example: Increase click-to-call inquiries to 100 per week by 31/12/2024
Year Over Year Growth
Business owners want sustained growth over time. They want their venture to bring in more customers and increased revenue each year. Comparing the current year’s performance with the previous year’s records can help provide some insight.
If you see a downward trend in growth, you may need some remedial action to put the business back on the right track.
KPI example: Increase year over year growth by 10% by 31/10/2024
Tracking growth metrics helps you determine your progress towards reaching your long-term goals. It also helps identify troubling trends and issues with overall performance.
Some of these trends aren’t visible while tracking smaller metrics. For example, your profits and conversion rates might be sound, but your growth KPIs might still show a downward trend. This form of visibility is essential to keeping track of your business’ true success.
Retail KPIs For Understanding Transactional Metrics
It all boils down to money and business owners want to keep track of it. You want to know your profit margins, ROIs, investments, etc. Here are some KPIs that provide insight into how much money your business is earning or spending:
Gross and Net Profit
Gross profit tells a business owner how much money they’ve earned after deducting product creation and sales costs. Net profit is the profit earned after all business expenses are accounted for.
Both of them provide insight into your expenses and earnings. The data from these metrics can help you channel your resources, plan cost cuts, and introduce business strategies accordingly.
KPI example: Increase net profit by 16% by 31/12/2024
Average Transaction Value
This metric tells you how much people spend on your products on average. A high transaction value indicates that people are buying more products or higher value products from your store.
A low value indicates that people are buying fewer items or lower-priced products from your store. This provides insight into the nature of how your customers interact with your business and can inform pricing and product strategies.
KPI example: Increase average transaction value by $50 by 31/08/2024
It is also a good idea to track the cost of and profit from every sales lead. It can give you an idea of how different types of leads pass through your sales cycle, and how they translate into revenue.
This metric will also help you understand where you need to optimize your marketing campaigns to attract more leads at a lower cost.
These examples of retail KPIs should help give guidance on some common KPIs you might use to track the key business objectives of your retail organization.
The data collected can help you make smart decisions, avoid common pitfalls and contribute to growth. Most businesses track their KPIs on a monthly basis to keep an eye on their progress.