While there are plenty of retail performance KPIs you can use to assess the performance of your retail business, what we outline here is simple and easy … a good starting point for people not sophisticated when it comes to grad school business KPI analysis.
This advice outlines one of the first assessments we undertake when asked by the owner of a retail business to review the performance of a business. The approach we outline here provides an understanding of the return being achieved from floor space allocation. With retail space usually costing between 11% and 15% of revenue it is usually the next highest cost outside of the cost of stock itself.
Spend half an hour on what we suggest here and the result should be a different view of the performance of your floor space allocation. This is not advice you will get from your accountant or from reviewing your P&L or computer reports. It is designed to be practically helpful in managing your business.
Please follow these simple steps.
- Take a blank sheet of paper, ideally A3, and roughly sketch out the layout of your shop, marking in display units, wall shelving, the counter – everywhere you have product.
- The floor plan layout should also include your back room if you have stock there.
- Colour-shade the layout by department. For example, shade all areas with magazines in yellow, all floor space for gifts in blue etc.
- List the departments on the side of the floor plan.
- Calculate the percentage of total space taken by each department. This does not need to be accurate to two decimal places. List this next to each department you have listed.
- Use your POS software to report on gross profit earned by each department over the last year.
- Calculate the percentage of total gross profit contribution earned by each department and list this next to the floor space allocated to each department.
- Circle in blue those performing the best and in red those performing the worst. A best performing department will typically be responsible for a significantly higher percentage of gross profit than percentage of space allocated whereas a worst performing department will be contributing a percentage of overall gross profit considerably lower than the percentage of floor space allocated.
Once you have the marked-up floor plan with the space percentage and percentage of total gross profit, think about your floor space allocation.
The above steps do not take into account product size and the average gross profit percentage from each dollar of revenue for a department.
The objective of the analysis is to provide you with fresh insights you could use when considering floor space change.
You can take the analysis a step further by looking only at one department and analysing performance by category.
This advice is an example of the practical small business retail management advice provided buy Tower Systems in its assistance to indie small business retailers. Beyond the POS software we help retailers run more valuable, successful and enjoyable businesses.