Top 10 Ways To Reliably Measure Performance In Retail (Part 1)

Choose the right retail 'lens' to look through

I spend a great deal of time with business owners and managers discussing the 'position' of their enterprise. I have chosen the word 'position' to reflect the breadth of the aspects we consider.

In a business context, we look at successes and failures, financial performance, future direction, pricing, margin or innovation. On the staffing side, what about job satisfaction, performance, motivation, training, recruitment and job specs? Then, more generally, customer retention, equipment, production, merchandising and marketing.

At various stages I ask owners questions about their business and how they measure performance and what the indicators are that tell them whether or not they are doing a good job.

Now, as a consultant, if we are having this type of conversation then it’s probably because they have asked for some advice. There is no shame in that. Never forget that even large organisations with a huge resource of talent in a wide range of skills will ask for external advice – either from consultants or non-executives.

So why shouldn’t a family enterprise ask for some independent advice also?

Getting performance measurements right involves identifying the areas of business that it makes most sense to focus on and then deciding how best to measure performance in those areas.

How do YOU define success?

Getting performance measurements right involves identifying the areas of business that it makes most sense to focus on and then deciding how best to measure the data available in those areas.

Performance measurements will be a more powerful management tool if we look at specific areas that determine the overall business success.

Whilst some may already have a good understanding of performance, I would recommend putting in some time to develop a strategic awareness of what it is that drives success for businesses in our industry.

So, it’s essential to first realise that there will be more than one measure and to tailor measurement to specific contexts and objectives.

Once we have identified the measures, we can then set about using these to improve performance.

As a final first word, this can be quite a long list – and I would also make sure we don’t waste valuable time with measures that are either irrelevant, or simply don’t feel right.

My 'Top 10' Reliable Measures Of Performance

#1: Financial Performance

Understanding and assessing financial measures of performance is of course a crucial part of running a growing business. It will be much easier to find issues, look for improvements as well as to invest and manage, if there is a known way to drill into management accounts to find out what's working and to identify what’s happening.

It goes without saying that you first need to have the numbers to hand, and to take time to analyse the reports.

Profitability

Most businesses ultimately target increased profits, so it's important to know how to measure profitability.

The key standard measures are:

#2: Customers

Finding customers is a crucial task for every business; retaining customers is even more so.

So, when looking for areas of your business to start measuring and analysing, it's worth asking yourself if you know as much as possible about your customer base.

I always encourage retailers to try and see their businesses through their customers' eyes and with their customers’ experiences. To this end, feedback is very useful - the more you know about what your customers think and want, the easier it will be to cater for them.

There are a number of ways to do this, all of which go to help make up that all important information from which to look at ways to act and improve.

Look for ways of capturing this information including:

More generally though, try to widen your focus beyond your current customers.

Selling more to existing customers is certainly an essential way of increasing sales but you will need to find ways of reaching new groups of customers.

This is not easy in the farm shop sector as we tend to cater to locals, and those with independent transport – and more importantly those that have shown an interest in great well sourced food.

However, knowing more about sections of the market you haven't yet tapped is crucial. We should look at tourism, differing age groups and generally ways to encourage people to visit.

#3: Average Spend

Farm shops use this one frequently.

It’s a simple measure of sales against number of transactions but some farm shops are surprised at how low it can be. If there is an assumption that everyone comes in for a weekly shop, think again. Sale of a single jar of jam, or pint of milk is just as likely.

That said, it’s a good tool; sets a bar and can provide direction.

For example, if you had weekly sales turnover of say £10k, and you had 1000 purchases, this gives you an average of £10. You might then encourage everyone to aim for an extra £1 per basket, which if followed through would add over £50k to your sales line.

A good return for a relatively modest change.

#4: Items Per Basket / Basket Size

In our retail business, a sold item provides revenue, but it also covers handling costs like stock value, transaction time and staff wages as well as costs of retail space.

Your EPOS system should be capable of providing you with helpful data.

If your transaction volumes are low, the number of items may seem insignificant, but when the sales volumes are higher, it starts to be important. For example, if your retail business has good average values per purchase, but the number of items is rising, it might mean people are buying cheaper products.

It might be worth checking on special offers which might be going too far and maybe you’re overdoing something?

Additionally, when you reach the following month, nobody buys your staples because your customers now have plenty at home. In general, if your average sale per transaction is going up, the item count rises too. That said, it would be better if the item count is slower to rise than the sales value average. Clearly you want to sell for more money, not just sell more.

I would also add not to worry if the average shopping basket has more items in it, as in most cases, bigger is better. It shows greater interest in a broad range of products. Its best to use common sense to assess the situation. It's perhaps that moment to look at a campaign for adding more items to the basket.

#5: Sales Per Sq. Foot/Metre

The large retailers use this to compare industry standards.

It’s also one to watch when looking at rent, allocation of space to sales as opposed to warehousing or admin (it only normally measures sales area) etc. This is simply sales divided by space. So, for example a shop with 3000 sq. ft. of retail space and sales of £2m has a sales per sq. ft. of £666.

It can, however, give insight.

With a basic understanding of sales per square foot it can be used to maximise sales looking at shop layout, traffic flow, selling the right products, optimising prices or promotions, increasing transaction / basket value, loyalty programmes, staff training and dwell time.

My constant reminder, across any analysis, is that you simply can’t manage these businesses if you don’t measure continually. Most enterprises have several aspects to them and so it’s even more important to see what is going on.

Whatever we think, we are also in a numbers business with costs that can easily get away from operators if they are not carefully tracked and measured.

Once we have identified key measures – or business drivers, we need to find the best way of measuring them.

Your priority should be to look for as close a link as possible with those elements of performance that determine success.

For example, you may decide that customer service is a strategic priority for the business and therefore to start measuring this.

Amongst the areas available to us, none of these is necessarily better than any other. The challenge is to find which specific measure (or measures) will enable us to improve.

Look out for the next 5 of my top 10 in part #2.

'Til then, happy retailing.