People always say to trust your gut, but when running a retail business, it’s better to trust the data. Tracking retail key performance indicators (KPIs) will serve as your single source of truth for how your shop is performing.
Without tracking KPIs, you’re essentially stabbing in the dark when it comes to inventory management, sales strategies, decision-making, and more.
The KPIs you track will depend on the nature of your retail shop, so choose data that will serve your long-term goals. Identifying and tracking retail KPIs can feel daunting, but with the right tools, like an all-in-one retail point of sale (POS) system, the job is made easy.
In this blog, we’ll share nine retail KPIs, why they matter, and how to measure them. We’ll also discuss the tools you need to effectively measure them so you can start making better business decisions today.
Choosing the Right Retail KPIs
Before we dive into our list of KPIs to prioritize this year, let’s lay some groundwork. What exactly are KPIs?
Key performance indicators are measurable data that demonstrate how effectively your business matches or exceeds benchmarks.
They provide insights into various aspects of your retail operation, helping you identify areas for improvement and make informed business decisions. Your gut may be telling you business is good, but data doesn’t lie.
KPIs can vary significantly based on your retail sector, product mix, and overall business strategy. For example, a clothing boutique KPI dashboard may prioritize metrics like sales per square foot and inventory turnover, while a grocery store might focus more on sell-through rates and shrinkage rates.
By selecting the right KPIs for your business, you can better align your strategy with your long-term goals.
Criteria for Selecting KPIs
With so many KPIs to choose from, which are the best for your retail store? Keep these three criteria in mind.
- Relevance to business goals: Don’t monitor KPIs that don’t serve you — choose KPIs that directly relate to your goals and business objectives.
- Actionability: Choosing KPIs that are too lofty will only lead to failure. Ensure that the KPIs you monitor allow for actionable insights. Making SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) goals will allow for metrics that can lead to tangible changes, not just interesting data points.
- Alignment with customer experience and satisfaction: Your KPIs should reflect your customers' experiences. Consider how you can improve their journey through your store based on this data.
Now that you understand why KPIs are important, let’s explore the top nine retail KPIs to prioritize this year.
Related read: 11 Key Performance Indicators Grocery Stores Should Track
KPI 1: Sales per Square Foot
- Definition: How much money you make per sale per square foot of retail floor space. Fitting rooms, stockrooms, and other non-sales areas are not included.
- Why it matters: This metric helps you understand if the layout of your store is effective in generating sales and if you need to downsize
- Formula: Net sales/Amount of sales space
Related read: How To Create a Floor Plan for Grocery Stores To Maximize Profits
KPI 2: Year-Over-Year Growth
- Definition: This KPI shows how your business is performing this year compared to last year or previous years.
- Why it matters: It gives you a better understanding of how your store performs from year to year and makes it easier to identify growth trends.
- Formula: [(This year’s sales – Previous year’s sales) / Previous year’s sales] x 100
Related read: Top 5 Retail Industry Trends To Watch in 2024
KPI 3: Conversion Rate
- Definition: This retail KPI measures the percentage of visitors who generate revenue while visiting your store.
- Why it matters: It’s a measurement of how well you encourage sales in your store. A low conversion rate means you may need to adjust your in-store sales strategy.
- Formula: (Number of sales/Number of visitors) x 100
Related read: 18 Essential Reports for Your Store Performance Dashboard
KPI 4: Sell-Through Rate
- Definition: Sell-through rate measures the number of products sold as a percentage of the total number of units available to sell.
- Why it matters: This number helps you understand which products are selling and which aren’t. Knowing this number will help you adjust inventory ordering.
- Formula: (Number of units sold/Starting inventory) x 100
Related read: Grocery Store Profit Margins: How To Maximize Profits in Your Store
KPI 5: Inventory Turnover
- Definition: Inventory turnover measures the number of times you sell and replenish your inventory during a given time period.
- Why it matters: This gives you clear insight into your best sellers. A high turnover means you’re selling products too fast and not refilling fast enough. Low rates may signal overstock or dead stock.
- Formula: Cost of goods sold/Average inventory cost
Related read: What Is a Good Inventory Turnover Ratio for Grocery Stores? ANSWERED
KPI 6: Average Transaction Value (ATV)
- Definition: Also known as average order value, this KPI measures the average amount customers spend in your store.
- Why it matters: If your ATV is high, it means customers are either buying high-value items or lots of items at once. It could also mean you’re making successful upsells. A low ATV is the opposite. Knowing this will help you adjust sales strategies.
- Formula: Total revenue/Number of orders or transactions
Related read: How To Boost Your Business With Retail Sales Reporting
KPI 7: Cost of Goods Sold (COGS)
- Definition: COGS measures how much it costs to acquire inventory
- Why it matters: Knowing how much you spend to acquire or manufacture products will help you set more competitive prices that also offset your expenses. This is a key metric to measure to find profitability.
- Formula: Beginning inventory + Inventory purchases – Ending inventory
Related read: What’s the Average COGS for Retail? Everything You Need To Know
KPI 8: Gross Profit
- Definition: Your gross profit measures how much money your shop makes minus the cost of the goods you’re selling (COGS).
- Why it matters: Gross profit will help you understand how profitable your retail shop is and if you are spending too much on purchasing inventory.
- Formula: Total revenue – Cost of goods sold
Related read: Gross Profit Margin vs. Net Profit Margin: Which Is More Important?
KPI 9: Net Profit
- Definition: Your net profit is the total profit you’ve made minus business expenses.
- Why it matters: A low net profit means you should reduce your business expenses. This measurement helps you better understand whether you’re making enough to keep your doors open.
- Formula: Total revenue – Total expenses
Once you choose your retail KPIs, it’s important to implement and monitor them on a regular basis to make meaningful improvements in your store.
Related read: The Guide to Grocery Store Profit Margins (and How To Improve Them)
How To Implement and Monitor Retail KPIs
First, define clear objectives. Establish SMART goals for each retail KPI that align with broader business objectives. This will help everyone understand what success looks like. For example, “I want to sell 50 more shirts this year than last year.”
Next, standardize your data collection process and establish a reporting frequency. Use consistent methods for collecting and analyzing data across all departments. This reduces discrepancies and ensures accurate reporting. Don’t forget to decide how often you want to review KPIs (weekly, monthly, quarterly). Regular reviews help identify trends.
A modern POS solution makes it easy to collect and track accurate data no matter what. Thousands of retailers nationwide trust POS Nation with our point of sale features and benefits, including:
- Inventory management
- Employee management
- Customizable reports
- Intuitive KPI dashboard
- Label and barcode printing
- Sales history
- Customer loyalty
- Credit card processing
All with no long-term contract or hidden fees.
Lastly, communicate KPI data. Share KPI results with your team. When team members understand their roles and share updates openly, everyone stays accountable and works better together toward their targets.
Track Important Retail KPIs With POS Nation
To sum it up, identifying and tracking the right retail KPIs will lead to better business decisions.
But to truly make the most of KPIs, you need the right tools. POS Nation’s robust reporting features make it easy to track essential KPIs in real time. This helps you make quick decisions to improve sales and keep customers happy."
POS Nation can get you on the right track with inventory management, customer loyalty programs, credit card processing, and more. And the best part? POS Nation grows as your business grows.
Schedule a demo today to learn more about how POS Nation can improve your retail business.
