“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.”
― H. James Harrington
Introduction: These are what we consider 5 very important metrics small and mid-sized retailers should have their eyes on to help them stay competitive in this constantly changing market and shopping battlefield.
Measures, Metrics & Indicators = Actionable information to drive your business
My son runs track for UNC-Charlotte, and when he practices, the coach always has a stop watch to determine speed and improvement. Without it, it would be guess work and not efficient.
FIVE METRICS You need to be looking at now:
Sales – Cost of Goods Sold = Gross Profit
Total Revenue / Total Payroll
Inventory turn is a ratio showing how many times a company’s inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or “inventory turnover days.”
Generally calculated as:
However, it may also be calculated as:
Cost of Goods Sold
Things to remember:
– A low turnover is usually a bad sign because products tend to deteriorate as they sit in a warehouse or on the sales floor.
– Companies selling perishable items have a very high turnover.
– For more accurate inventory turnover figures, the average inventory figure ((beginning inventory + ending inventory)/2) is used when computing inventory turnover. Average inventory accounts for any seasonality effects on the ratio.
4. TRANSACTION ANALYSIS
– Units Per Transaction (Benchmark range: 3.0-4.0)
– Average Transaction Value (Benchmark range: $125-$175)
– Number of Transactions
This is an EVALUATION OF CUSTOMER EXPERIENCE
Your customers vote with their dollars and loyalty! If they’re not spending with you, you can usually look at the transaction data and see a customer experience program that is not working properly.
5. INVENTORY SHRINK
The difference between your physical inventory and your inventory in stock
This is a measure of DISCIPLINE AND PRECISION
The stats aren’t very encouraging, but we should learn from them!
10% of your employees would NEVER steal from you.
10% of your employees will ALWAYS steal from you.
80% of your employees WOULD steal from you if you gave them a reason (“I’m underpaid,” “I didn’t get a raise,” “They don’t appreciate me,” etc.) or an opportunity (no processes, no accountability, no followup, no inventory counts.)
Benchmark: Industry average is around 2% (but that is high!) You should target an Inventory Shrink of less than 1% and conduct a physical inventory ONCE A YEAR.