The primary (and probably most obvious) factor influencing a business’ well-being. Several KPIs can be used to determine sales performance:
- Gross Margins by Category: The amount of money retained after deducting the direct cost associated with the product being sold. Indicates the portion (%) of the sale that is retained. For example, here are the benchmark gross margins in the home furnishings industry (note: these have been calculated using landed costs):
- Appliances: 20% to 22%.
- Bedding: 46% to 48%.
- Furniture: 45% to 47%.
- Extended warranties: 50%.
- Written vs. Delivered Sales: Monitor the ratio of sales from new customers to those from existing customers. This breakdown offers valuable insights into your performance.
- Foot Traffic: Tracks store visits, offering insights into customer behaviour such as visit duration and peak hours. Use this data to refine your marketing, gauge campaign effectiveness, and optimize operations, from staff scheduling to inventory management, for greater efficiency.
- Close Ratio: Represents the percentage of sales opportunities or leads that result in a successful sale or deal being closed. This metric measures your team’s ability to transform browsers into buyers.
- Average Transaction Value (ATV): Measures the average amount customers spend per transaction. Track and adjust this figure using promotions, special events, an optimized store layout, added sales training, and an online presence.
2. Inventory Management
Efficient inventory management requires data such as quantity, cost, unique identifier, retail price, location, and key dates per product. We’ll now concentrate on these vital metrics for assessing your optimal level:
- GMROI – Gross Margin Return on Inventory: Measures how efficiently you leverage your company’s inventory. Simply divide the gross profit (the sales minus the cost of goods sold) by the average inventory cost. Here are some average GMROI figures for different categories:
- Appliances: $1.00 to $1.20, meaning every dollar invested in inventory yields a profit of $1.00 to $1.20.
- Bedding: $2.00 to $2.50.
- Furniture: $1.75 to $2.00.
- A high GMROI indicates effective inventory management and demonstrates a strong return relative to your investment in inventory. A low GMROI suggests inefficiency in inventory management, whereupon a review of purchasing, pricing, and sales strategies is recommended.
- Inventory Turns by Category: Measures how quickly you sell and replace products within a specific product category, quantifying how many times the inventory for said category is sold and replenished within a given timeframe. Helps assess the efficiency of inventory management for different segments of your business and evaluate current and future needs. Here again are a few benchmarks:
- Appliances: 3-4 per year.
- Bedding: 4-5 per year.
- Furniture: 2-2.5 per year.
- Overall Inventory Levels as a Percentage of Sales: This metric, expressed as a percentage, evaluates inventory efficiency compared to revenue. For example, for stores carrying appliances, bedding, and furniture, a general guideline is to maintain inventory at around 20% to 22% of retail sales.
- Aged Inventory Report: A financial report that shows how long inventory items have been in your warehouse. Assists in recognizing items that have aged, become obsolete, or are simply unpopular. It equips you with the necessary information to identify and begin the process of liquidating these items.
3. Expense Budgets
Keeping a close eye on your spending facilitates early identification of any potential financial challenges or discrepancies, allowing you to take measures to address these issues before they escalate.
- Advertising Expenses: Includes campaigns, creative production, and media placement to promote your products, services, or brand to your audience. Regular monitoring of advertising expenses allows you to identify which channels or campaigns provide the best return on investment and allocate your resources accordingly.
- Credit Card Fees: Includes annual fees, late payment fees, balance transfer fees, and interchange fees.
- Sale Wage Expenses: Salaries, commissions, bonuses, and any other forms of compensation for your sales’ team. Keep an eye on this percentage to refine your sales strategies and improve overall sales performance.
- Overall Wage Expenses: The same principle applies to your whole workforce. High wage expenses might suggest productivity issues, redundancies, or other inefficiencies, whereas low wage expenses could indicate a staff shortage, possibly leading to burnout and lower productivity.
- Delivery/Warehouse Expenses: Expenses related to shipping, handling, storage, and hired help associated with delivery and warehousing. Shows you opportunities for optimizing the supply chain, such as choosing more cost-effective shipping methods.
- Net Delivery/Warehouse: Encourages treating the delivery and warehouse aspects of your operations as distinct profit centers. While generating income from these areas may not always be feasible, cost neutrality should be the goal!
Industry Benchmarks: Percentage (%) of Sales
|Advertising Expenses||Credit Card
|Net Delivery, Warehouse|
|3 – 4%||1.2 – 1.4%||6.5 – 7 %||16 – 18 %||4 – 4.5 %||2 – 2.5%|
The key to a profitable business lies in your commitment to these industry metrics, KPIs, and vigilant cash flow management. Every dollar has a job to do! With the use of these Key Performance Indicators and the support of our team here at Expert Accounting, your profitability—and ultimately, your business—will reap the benefits. Those that have embraced our system have enjoyed additional net profits of 2 – 3% of sales.
We collaborate with independent retailers and provide them with accurate financial reports backed by the latest data and analytics—all the above, and more! Our experts work closely with you to help you achieve your goals.
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