The 6 numbers every retailer should know
Here are six metrics every small business should have to hand:
1. Daily sales
Your daily sales are the most reliable metric to vet the performance of your business. You should conscientiously study your daily sales on a weekly and monthly basis to spot trends that are leading to your sales growth.
Is there a particular day in the week or a particular time of day that sales of particular products rise? Why is that and what can you do to make the most of this opportunity? Tools like My Business Hub offer an intuitive dashboard for analysing sales performance so you don’t have to be a statistician to work out these trends.
2. Average basket size
Want to understand your customers’ needs and preferences? Calculate average basket size to understand how much each customer spends on average for a given time period. This can be done by calculating the total sales revenue made in a given period and dividing that by the total number of customers to date.
The number will then help you gauge various ways through which you could entice your customers to spend more. Do people purchase a high volume of items? A packaged deal or offering suggestions of other items bought by customers purchasing the same product could boost the average basket size of your customers and lead to an increase in sales.
3. Stock levels
Your inventory levels are crucial to the success of your business. There should never be a situation where customers walk into your store and you have to turn them away because products are out of stock. Your sales reports will help you calculate the stock you need to fulfil the demands of your customers.
However you don’t want to be overstocking and risk wasteful warehouse costs and depreciation of the value of goods. If you’re repeatedly facing such a situation, think about ways to sell stock including offering them at a lower price or running a promotional offer, such as bundles.
4. Gross profit
Gross profit is one metric that all retailers swear by. The gross profit on a product is calculated as: Sales – Cost of goods sold = Gross profit.
The concept of turning a profit is simple, keep your costs low and maximise your sales. Tight cost control will lead to hitting gross profit and net profit targets, which is key to generating a sustainable income for yourself.
5. Returning customers
The biggest mistake a retailer can make is chasing new clients and forgetting about old ones.
You need to give your customers a reason to come back to you and a good quality product isn’t the only reason a customer will choose you over a competitor. You can incentivise repeat customers by offering loyalty schemes and discounts or through capturing their email address, you have the chance to directly let them know about special offers (although make sure you get their consent to do this).
6. Sales per square feet
You should calculate the total number of sales you’re making for the retail space you’re using to ensure return on your retail investment.
This will help you do a cost-benefit analysis of how worthwhile your investment is proving to be. If your product is selling is like hot cakes but doesn’t cover the rent of your shop, you need to re-think your sales strategy. By calculating your sales per square feet you can then tweak your prices and volume to ensure maximum return on your investment.