5 KPIs for retail or e-commerce businesses to increase performance

A question that we sometimes get asked is, “How do I know if my company is achieving its goals and making real progress?” One essential framework is by implementing KPIs (Key Performance Indicators) – specific metrics that will not only track performance in critical areas but also help identify time-sucking tasks and align objectives with overall goals.

Some common KPI focuses include tracking financial metrics such as revenue and profit margins, as well as non-financial metrics such as customer efficiency and operational performances. By understanding these analytics, retail and e-commerce business owners can then make more accurate and informed decisions – and more quickly – in an ever-evolving market.

Not all KPIs are applicable to every business, however. From industry to industry, the metrics for business performance will be different. Let’s look at five relevant KPIs for retail and e-commerce businesses that can help maximize success.

Sales Per Square Foot

The Sales Per Square Foot KPI is used to evaluate the performance of a retail space. This metric helps business owners to strategize an efficient store layout or merchandising placement to its maximum potential. A retail space that is utilized well – for example, repositioning products in low-performing sections – can provide more opportunity for sales and profit. Along with optimizing the store and merchandizing layout, retailers may also seek to improve their product mix or incorporate dynamic pricing to increase sales per square foot.

Formula: Total net (after discounts and returns) sales revenue divided by total square footage of selling space.

ROAS (Return On Ad Spend)

ROAS helps determine the total revenue generated for every dollar spent on advertising. This metric gives retail and e-commerce businesses a way to determine whether their marketing campaigns are effective and producing results or if adjustments need to be made. Insights from ROAS metrics also inform budgeting, financial forecasts and future marketing strategies. The use of ROAS can help ensure business owners will make more sound marketing decisions that can impact their bottom line.

Formula: Divide the determinable revenue for ads by the cost of the ad.

Inventory Turnover

As any retailer knows, stock that sits around too long can tie up cash flow, while stock that moves too quickly could leave an empty shelf and missed sales. Aptly named, the Inventory Turnover KPI helps provide insight into inventory turnover – how quickly a product is selling through a period of time – to help business owners foresee the quantity of goods that needs to be ordered that can both meet demand and won’t tie up cash flow.

Formula: The cost of goods sold and divide it by the average inventory worth. This will give you how much inventory was sold and restocked over a certain period of time.

Average Order Value (AOV)

The average order value (AOV) looks at the average dollar amount a customer spends per transaction. For example, if a retail business has $1,000 in total revenue from 10 orders, then the average dollar spent per customer would be $100. By understanding this KPI, business owners can be strategic in marketing or making price adjustments to create a higher transaction amount, such as offering free shipping with a minimum spend.

Formula: To calculate the AOV, divide total revenue by the number of orders.

Conversion Rates

The name of the retail game is conversion, conversion, conversion. The ultimate goal for all retail and e-commerce businesses is to turn visitors into buyers. Although this KPI is not technically a financial metric, it can help business owners assess their overall efforts in their marketing, pricing, and inventory management. Examining conversion rates can help determine the efficiency of a company’s retail strategy and motivating potential customers to purchase.

Formula: To calculate a conversion rate, divide the number of conversions by the number of visits.

These are just a few of the KPIs that could be helpful to retail and e-commerce businesses. With so many more metrics available, it can be intimidating knowing where to start to better understand the health of your business and strategies for growth. Your trusted Finatics Accounting team can help guide you through this process and assess the results for you.

Let us know how we can help. Get in touch.