KPIs in the retail industry: Metrics for success
Applying the insights gathered through KPIs is central to retail success. This applies to brick-and-mortar retailers looking to optimize their in-store efforts, and to eCommerce platforms seeking to refine their digital operations.
Whether in the eCom or physical world, it’s important to know what retail key performance indicators (KPIs) metrics to look for, how to gather them and how they can be practically applied. Read on as we unpack this information.
How yesterday’s KPIs inform tomorrow’s strategy
Historical retail metrics inform two facets of future operations: campaigns and day-to-day functioning.
Put differently, by gathering insights on KPIs, you have the means necessary to optimally conduct specific marketing efforts — whether related to Black Friday, back-to-school, end-of-season, or another campaign specific to your business — and optimize the general way you run your retail business
By extension, how you utilize KPI metrics will change depending on your objectives — let’s look into this in more detail.
How key retail metrics inform future campaigns
By campaigns, we’re referring to sales and marketing initiatives that differ from the usual day-to-day operations and target specific goals or customer segments — generally with a clear start and end date.
Digital marketing campaigns
For online campaigns, KPI metrics help you on both the strategic and practical levels.
Strategically, these metrics let you know who your customers are, where they’re situated online, which marketing channels and types of content generate the most engagement and conversions, and where potential areas of improvement lie within your sales funnel, among other strategically informing factors. KPI metrics allow you to strategize for digital campaigns with visibility, unlike the guesswork required if no data is present.
Consider running a Facebook ad that retargets website visitors. Facebook will only let you run the campaign if you have a relevant list of users — either by manual input or through the Facebook pixel. Even for digital marketing campaign objectives that don’t require data input like those of retargeting campaigns, if you can feed digital advertising algorithms additional data, you're more likely to see the intended results.
In-store, seasonal campaigns
Let's say you aim to optimize your efforts for the upcoming in-store Black Friday sale. To do so, you look back at historical KPI data with the following question in mind: What was more effective, our doorbuster deals or our extended hours promotions?
Imagine your doorbuster deals resulted in a significant 25% increase in sales compared to your extended-hours promotions. Moreover, you find that the resource-consumption of extended-hours promotions simply doesn’t justify their results.
Depending on your business objectives and the nature of your retail business, you may then conclude that the optimal approach to the upcoming Black Friday sale is to capitalize on what you know works and dispense with what doesn’t. Then, place increased time and effort toward your doorbuster deals.
While this is a slight oversimplification, it speaks to the idea that retail businesses can make practical adjustments to their in-store campaigns based on an understanding of what historically didn’t work, what did and why.
How key metrics help inform the way you run your retail store day-to-day
Retailers need to constantly evolve — and it’s data that informs how they can best adapt.
One major change of recent years is the rise of eCommerce. Today, approximately 20% of all retail sales happen online. This has caused many retailers to adjust their baseline day-to-day operations to offer eCommerce sales routes that align with changing customer preferences.
Another major change is the heightening of customer expectations. Retail shoppers expect:
- Fast checkout times: This applies to eCommerce and in-store checkout times. In-store customers report that they consider seeking competitors if the checkout process is faster.
- Prompt customer service: Many customers prefer self-service over speaking to a company’s team member. This is a part of the wider trend of retailer shoppers expecting immediate customer service response times — customers are 2.4x more likely to stick with you if you offer prompt help.
- A seamless digital experience: For many consumers, a seamless experience across all devices and channels can be a top expectation. This means ensuring fast loading times, integrating customer support, maintaining intuitive site navigation, and other factors that make up the digital experience.
Without data from KPI metrics, retailers are left guessing what the market is doing and how they can best adapt their operations. Conversely, by understanding the key metrics that we’ll cover next, retail businesses can make better, more profitable decisions.
The all-in-one POS guide for retailers
Learn all about POS systems, the must-have features for retailers, and the steps for choosing the right solution for your business.
Key metrics for retailers
Below is a list of various key metrics for retailers. These show what’s working, what isn’t, and help you conclude why. Particularly when placed in a controlled environment, such as one campaign’s metrics compared directly with another’s, you can gain valuable insights into which strategies are most effective, identify trends over time, and make data-driven decisions to optimize future marketing efforts and increase overall profitability.
eCommerce metrics
The eCommerce metrics to look for include:
- Website traffic: The total number of visits or sessions on your website within a specific timeframe.
- Conversion rate: The percentage of visitors who complete a desired action (like a purchase) out of the total number of visitors. The conversion rate is calculated by dividing the number of conversions by the total number of visitors and then multiplying the result by 100 to express it as a percentage.
- Bounce rate: The percentage of visitors who navigate away from your site after viewing only one page. The bounce rate is determined by dividing the number of single-page sessions by the total number of sessions and then multiplying by 100 to get the percentage.
- Average session duration: The average length of time a visitor spends on your site during a single session.
- Cart abandonment rate: The percentage of shopping carts that are filled but don’t lead to a purchase. To find the cart abandonment rate, subtract the total number of completed purchases from the total number of initiated carts, divide the result by the total number of initiated carts, and multiply by 100 to express it as a percentage.
- Customer acquisition cost: The total cost of acquiring a new customer, including all marketing and advertising expenses. The customer acquisition cost is found by dividing the total spend on acquisition by the number of new customers acquired.
- Click-through rate: The percentage of people who click on a link compared to the total number of people who view the associated page, email, or advertisement. The click-through rate is calculated by dividing the number of clicks on a link by the number of impressions (or views) of the page, email, or advertisement and then multiplying by 100 to get the percentage.
- Return on advertising spend (ROAS): The amount of sales revenue earned for every dollar spent on advertising. ROAS is simply calculated by dividing the sales revenue generated from ads by the cost of those ads.
General metrics
Here are the general metrics to track.
- Sales per square foot: This metric measures the average revenue generated for each square foot of sales space — helping to inform decisions on store layout, product placement and overall store performance optimization. The formula for calculating sales per square foot is to divide the total net sales by the total square feet of sales space.
- Inventory turnover ratio: Inventory turnover ratio is a measure of how many times your inventory is sold and replaced over a period. To calculate inventory turnover, divide the total cost of goods sold by the average inventory during the period.
- Gross margin return on investment (GMROI): GMROI evaluates the amount of profit made for each dollar of invested inventory. It’s calculated by dividing the gross margin by the average inventory cost.
- Customer retention rate: This metric indicates the percentage of customers who continue to do business with you over a given period. The formula for customer retention rate is to subtract the number of new customers acquired during the period from the total number of customers at the end of the period, divide this by the total number of customers at the start of the period, and then multiply by 100 to get the percentage
- Sell-through rate: Sell-through rate measures the percentage of inventory sold in a specific period. It’s calculated by dividing the number of units sold by the number of units that were available for sale, multiplied by 100.
- Shrinkage: Shrinkage refers to the reduction in inventory due to factors such as theft, damage and errors. To calculate shrinkage, subtract the actual inventory from the recorded inventory and divide the result by the recorded inventory, then multiply by 100 to express it as a percentage.
The all-in-one POS guide for retailers
Learn all about POS systems, the must-have features for retailers, and the steps for choosing the right solution for your business.
How retailers can track key metrics
There are a handful of different strategies for collecting KPI metrics — let’s look into them.
eCommerce data collection
Consider the following three data collection mediums: website backends, third-party integrations and POS analytics.
- Website backends: This includes the content management systems, databases and customer server applications that sit behind your website. Depending on how your site is set up and where it’s hosted, you’ll have varying levels of access to raw data logs and analytical tools. Generally, website backends offer automatic reports that contain key KPI metrics, including views, user sessions, bounce rate, conversion rate, page load time, traffic sources and user demographics.
- Third-party integrations: Third-party platforms are a common go-to for data collection. Google Analytics, for example, allows you to track visitor demographics, session duration, bounce rates, traffic sources, conversions and more. There’s an expansive market for third-party data collection software, and retailers will generally opt for the solution(s) that meet their specific objectives.
- POS analytics: It's important to have a POS system that suits your needs. These systems can inform on a range of key metrics, including retail sales trends, inventory levels, average transaction values and customer loyalty metrics, among others.
In-store data collection
There are two ways that retailers can gather relevant in-store data: POS systems and customer feedback.
POS systems are generally the primary point of reference. They provide a comprehensive record of all sales transactions, including details on products sold, quantities, pricing and payment methods. Moreover, POS systems inform inventory levels in real-time, track employee performance by recording who processes each transaction, provide insights into average transaction value and customer buying behavior, and help identify trends in sales data.
Retailers also shouldn’t neglect customer feedback. It’s a primary source of qualitative data that provides insights into customer satisfaction, preferences and areas needing improvement. Customer feedback can reveal pain points in the shopping experience, highlight desired products or services and offer suggestions for enhancing store operations.
Receive the POS system best suited for you, with Sekure Payment Experts
KPI metrics are central to success — and POS systems are central to accessing that data.
By partnering with Sekure, our Payment Experts work closely with you to identify your unique business needs and objectives, ensuring you receive a cost-effective POS system that not only streamlines transactions but also provides valuable insights through KPIs.
That way, we can help you optimize operations, enhance customer experiences and drive profitability.
Learn more about Sekure’s POS solutions for the retail industry.
