Are your KPIs driving profit for your retail organization?
If you are a retailing executive who is focused on driving profit for your business, it’s important to ensure that teams across the various functions are also aligned with that goal. The first step towards a profit-minded organization is to question whether each team’s KPIs are designed to monitor and improve overall profit for the business. Historically, retail product teams have been focused on the KPIs for which they feel most accountable. For Site Merchandising, that may mean Product Conversion and Product Views. Marketing might be focused on Retention Rates, while Buying/Planning is striving to maintain healthy Margins, Inventory Value and In-Stock Rates. While these metrics are important, bringing in additional KPIs examining profit drivers ensures the health of the business is also priority. Here are seven new KPIs teams should look at in conjunction with existing metrics to drive profits for the business.
Site Merchandising KPIs
- Sales -> Retailing Profit – Driving top-line sales has always been the focus of a retail product organization, but just how is retailing profit impacted by the efforts to drive sales? Understanding where profit is being gained or lost across an organization is vital to determining strategies that can be discovered on the back of sales efforts.
- Product Views -> Product Profit/View – Site Merchandisers are keenly aware of how many product views are being generated each week and ensuring key items (i.e. high converting, high inventory) are receiving visibility is vital to encouraging sales. Utilizing Product Profit/View alongside Product Views ensures that direct exposure is maximized for those products which will drive profits for the business, whether that be through site content or marketing efforts.
- Product Conversion -> Demand Availability – Product Conversion can serve as an indicator as to how well the current product offering is being received by the customer. Retailers should build on customer desirability by ensuring that Demand Availability, the in-stock rate for a group of recently purchased items, is considered to promote continued momentum and profitability for these products (particularly for items at full-price).
- Customer Retention Rate -> % Customers Last Purchased > 6 Months With High-Moderate Profit/Order – Of course, customer retention is always top of mind, but are you focused on retaining the right customers? Narrow your focus and marketing dollars to those customers who are profitable for the business.
- Inventory Value -> Inventory Value: Not on Site/Not Viewed/Viewed, Not Purchased – How much in potential profit is sitting in the distribution center without any customer views? Monitoring Inventory Value on-hand for a category is one thing, but having the ability to examine profit being left on the table with inventory that is not viewed, non-converting or is not even available for purchase is quite another in terms of informing a strategy to move through the stock. Ensuring that products are receiving customer views is the all-important first step towards reducing inventory, promoting a healthy open-to-buy and improving profits for a category of business.
- Category In-Stock Rate -> Views Availability – Maintaining a high in-stock rate for a given category is important in driving sales activity. Views Availability goes beyond looking at category in-stock rates by aligning product views and inventory data to provide a view of how in-stock a retailer is for the products that are receiving customer interest. Sorted by Product Views, the Views Availability metric becomes a powerful indicator of where customer interest needs to align with inventory availability to continue driving sales and profits for these items.
- Margin -> Promo Margin Reduction % & Markdown Margin Reduction % – Buying and planning teams are constantly striving to maintain excellent margins for their business. Examining the Promo Margin Reduction % and Markdown Margin Reduction % for a given period can provide insight on just how significantly products were impacted by reductions in price, thereby reducing profitability for those items.