Today’s retailers have a wide variety of tools and methods for measuring performance available to them, making it possible to count on much more advanced Retail KPIs than ever before. For businesses, being able to measure something means that we can improve it, and this means that we can improve performance all along the supply chain, from supply chain management, to warehouse optimization, from the spaces where we communicate with the public (physical and virtual), all the way up to how we conclude sales and execute transactions.
We have already talked about KPIs in marketing and the main KPIs for measuring performance in CRM.
Technological innovation has accelerated the transformation of entire sectors, giving strength to a series of economic, social, and cultural changes: from alternative consumption models to traditional ones, to the emergence of a new consumer status, one that is more aware and attentive.
The engine of these radical transformations, which are profoundly reshaping the Retail market, are all the processes through which organizations collect, clean, categorize, interpret, and model data that are arriving from a myriad of sources.
The democratization of data — the pivot of a corporate culture that breaks down information silos to create and share knowledge among the various functions—is no longer just a possibility but a real need. To be able to navigate within a potentially infinite and chaotic ecosystem of information you must be able to rely on Retail KPIs (Retail Key Performance Indicators) that allow you to map the progress of business activities.
The ultimate goal is to enable the best possible decision making, to be able to provide insights that are useful for supporting a defined strategy to increase the volume of sales and maximize results on each point of contact.
To choose the Retail KPIs that are most suitable for capturing and translating the available data into understandable forms, the first step is to define the business objectives, whether it’s about growing the sales team or optimizing areas of the business (brick and mortar stores or ecommerce sites), increasing online access, or growing conversions, just to name a few. You must start here in order to choose the KPIs with which to track the company’s performance.
The point is that Retail KPIs and business objectives must always proceed together. The metrics that we will choose to carry out our measurements must always be perfectly integrated within the strategies that are designed to achieve certain results.
The same is true even if we’re talking about one of the most relevant areas of retail sale, namely that of large-scale retail. Also in this case, the choice of the “right” metrics, the correct implementation of the tools with which to view them, and the decisions on how to use the findings become an integral part of a GDO marketing plan.
Beyond transactional indicators: from the quantity of sales to the quality of the relationship
The most common performance indicators for a Retail company are transactional KPIs. Transactional KPIs, which are collected in the first of the three groups we will discuss in this post, although essential, do not exhaust the heuristic possibilities that digital tools offer.
The fact is that in the current context of consumption, made more complex by the mass diffusion of new communication technologies, an assessment that is clear, reliable and complete cannot be limited to the reporting of transactions (those that failed and those that went well. ) but it must also describe the overall development of the different purchasing paths as they are experienced by customers. In today’s consumer environment, which is made even more complex by the mass diffusion of new communication technologies, an evaluation that is intended to be clear, reliable, and complete cannot be limited to the reporting of transactions (those that failed and those that succeeded). Instead, it must also describe how the different purchase paths unfold for customers.
In other words, it has become inevitable to shift attention from the product to the buyer, from the quantity of products or services to the quality of the shopping experience, from the brand monologue to the conversation between brand and consumer.
In this post, we will take transactional Retail KPIs as an inevitable starting point and from there we will focus on metrics that are able to grasp the unitary and holistic dimension of the sales path (and purchasing) more than traditional ones. Here, we’re talking about relational KPIs and cross-channel KPIs (also referred to as omnichannel).
In particular, by synergistically using all three of these types of Retail KPIs we will be able to:
- monitor the activity of the company as a whole,
- measure performance more accurately, and avoiding an otherwise partial view,
- offer the insights needed to improve the various decision-making processes.
Before continuing, let’s stop for a moment to fix some basic concepts in our memory: what are Retail KPIs? What are they for?
What are Retail KPIs?
Key performance indicators, or KPIs, are the metrics (numbers) that need to be monitored on a regular basis in order to determine if an activity (for example: promotional initiatives, social campaigns, or other marketing actions) is achieving the expected results.
There are many kinds of retail businesses, so each one requires a specific measurement. If you neglect this initial step of recognizing the differences, you risk being flooded with data that not only may be incorrect, ambiguous, or incomplete, it may be completely irrelevant in terms of the indicators that matter for your type of business.
What are Retail KPIs for?
Retail KPIs are key performance indicators because they offer crucial support in evaluating a company’s performance and they also provide suggestions on the most appropriate course of action to take in the immediate future: they indicate the solution for correcting ineffective actions, resolving malfunctions, or eliminating harmful behavior.
Depending on what you are measuring, for example the progress of a promotional campaign, the functioning of a new software solution for warehouse management, the public response to a different approach to the customer care service, the effectiveness of personalized content distributed over multiple channels, etc.—Retail KPIs allow you to have an overview in the following areas: on the sales situation, on the movement of stock, on the level of customer satisfaction, on the number of conversions obtained by modifying some aspects (and not others) of the content strategy, etc.
So far we have talked about the general characteristics of Retail KPIs. Now we will go into detail, identifying the metrics that offer the most effective measurement possibilities within each category.
Transactional Retail KPIs (sales metrics)
Transactional measurements, by definition, focus on individual transactions and only capture customers as they interact with a company. There are many; here we report the ones most commonly used:
- Sales & Gross Margin: Percentage of items sold in a given period of time.
- Average Receipt (the average shopping cart of an online shop): average amount spent by a customer in each transaction in a physical or virtual store.
- Unit per Transaction: average number of items per single receipt (or cart).
- Sell Through: percentage of products sold compared to those received by the supplier (ratio between sell in and sell out).
- Sales by Square Footage: sales volume per square meter. This metric was created to describe transactions that occur in a physical store; the advent of the metaverse with the projection of the user-avatar in an immersive and virtual environment (ecommerce, marketplace, social selling) could complicate and enrich this definition.
- Inventory Turnover: the number of times inventory is sold or used in a given period of time.
Relational Retail KPIs
Among the most innovative metrics, relational Retail KPIs reflect the paradigm shift that has redefined the balance in the relationship between brand and customer, shifting the balance in favor of the latter. The most commonly used are:
- Customer Retention (customer loyalty rate): an excellent indicator for customer service, product performance, and measurement of the degree of loyalty; this is one of the most common methods for determining the customer loyalty rate. Indicates the number of customers who return to shop from a brand after purchasing a product or service.
- Net Promoter Score: expresses the probability with which a brand’s customers recommend it to someone else on a scale from 1 to 10. The NPS is the result of a survey that aims to investigate whether and with what intensity a customer would recommend certain products or services. Based on their responses, the customers interviewed are divided into promoters (the enthusiastic spokesperson), passive (who rarely report and recommend to third parties), and detractors (who have had negative experiences and are considering switching to a competitor). The NPS is not without criticism: it is not a reliable indicator of customer retention and is rarely related to the abandonment rate. Its greatest contribution is at the account level: collecting regular customer feedback helps address frustrations and concerns and minimize the risk of abandonment.
Cross-channel Retail KPIs (omnichannel metrics)
The “traditional” single-channel metrics are those still linked to a rigid separation between the in-store purchase path and digital channels (for example: sales volume, website permanence, page views, net number of conversions, shopping cart). For each retailer, the interaction between physical and digital channels tends to become more and more complicated, and even if the channel Retail KPIs continue to play an important role, they fail to capture the full value of an exercise.
Instead of focusing on traditional metrics, flattened on a single medium, retailers must configure KPIs on the different channels that are covered by the brand. The goal is twofold: to measure all the possible levers that guide customer behavior along their journey and to track the complete series of activities carried out by store employees. The most important cross-channel retail KPIs are:
- Conversion rate: the conversion rate is the ratio between visits to the store and the number of buyers who have made a purchase. The conversion rate measures the effectiveness of the initiatives implemented to engage the target audience, to qualify leads, and to transform users into customers.
- Store traffic: literally the number of customers; it indicates the total number of customers that enter a store. By translating the definition from the physical to the virtual world, this is used to relate the impressions of digital marketing campaigns to actual store visits. It aims to determine the number of consumers who view the ads and then visit the store, combining the data collected “in presence” and the results obtained from interactions with digital channels.
The choice of which Retail KPIs to use not only concerns “what” you want to measure—hence the distinction between transactional, relational, cross-channel KPIs—but also the frequency of measurement operations.
Frequency of Retail KPIs: measuring the “moments of truth”
In his article, How should you measure customer experience?, Daniel Lafrenière reports on the reflections of Francis Pelletier, VP Customer Experience and Innovation of SOM Research Group, identifying three types of measurement frequency: continuous, punctual, and periodic. Let’s see how time and repetition considerations influence Retail KPIs.
- Transactional metrics can isolate and translate the perception of the customer along their purchasing journey into a given quantity: on a particular transaction, within a given interaction, on a specific touchpoint. For example, the quality of the customer experience can be assessed at the time of ordering, payment, or delivery.
- The CSAT (Customer SATisfaction) and the CES (Customer Effort Score) are examples of transactional KPIs used to qualify and quantify a specific interaction; they show the appreciation of customers at a given moment, but they don’t tell us anything about the overall interaction or the complete succession of interactions.
- Relationship KPIs measure the state of the relationship between customers and the brand from the beginning of the commercial relationship, allowing you to observe how the interaction evolves, even in its emotional range (that is, they help to define customer sentiment towards a brand) from a historical point of view.
- The NPS (Net Promoter Score), which we have mentioned, is the archetype of the relationship KPI. It measures a customer’s propensity to recommend a product, service, or brand to friends and family following an interaction.
Continuous measurement is the one that perhaps has the greatest descriptive potential: anchoring it to the customer journey can reveal the so-called “moments of truth”, that is, the crucial moments of the customer’s relationship with the company.
If we combine transactional, relational, and omnichannel KPIs and look at them from a joint perspective with continuous measurement, we will see that they influence each other and this is how they acquire meaning.
To get a reliable overview of the activities of a store (supermarket, neighborhood store, or e-commerce, the path is the same), we must be able to adopt the right KPIs and monitor them with the right frequency. We need to anchor our measurements to moments of truth by connecting them to the promises made to customers, the type of service offered, and the emotions the brand intends to create.