As the retail industry continues to reinvent itself, the old ways of measuring success are becoming obsolete. The traditional approach to sales metrics emphasized same-store sales, sales per square foot, customer traffic, units per transaction (UPT), average unit retail (AUR), and digital growth.
The problem is, most of these metrics don’t reflect the way retailers operate today, leaving managers to look for new ways to measure data. One study found:
- 88% of retailers are investigating new methods of sales metrics.
- Only 32% believe their internal metrics “really align” with their external performance metrics.
- Only 8% are confident that their current metrics have kept pace with changes in the retail industry.
To successfully manage the transition to the new world of retail, managers need to identify the sales metrics that matter most to their current operations.
The 7 Most Important Sales Metrics That Matter to Modern Retailers
The POS experts at talech have compiled the top seven metrics that will best help retailers identify, understand, and capitalize on the most important sales trends.
1. Customer Lifetime Value
The goal of the customer lifetime value (CLV) metric is to measure the value that retailers create when they acquire customers and the value they capture through ongoing profitable relationships with returning customers. To calculate a store’s CLV, multiply the average annual revenue per customer by the duration of the customer relationship in years, and then subtract the cost of acquiring the customer via marketing and other promotional efforts.
2. Sales per Unique Customer
This metric is an adjunct to CLV that determines the amount specific customers spent per year in the case of multiple small purchases, or the price they paid for large purchases made less frequently. A key benefit of this metric is its ability to help growing businesses emphasize meeting their customers’ needs at a time when customer expectations are increasing.
CLV measures both sales growth and market share. It identifies new customers, retained customers, and total number of customers. However, CLV doesn’t measure profitability or profit margin. The metric also fails to capture the business’ revenue from alternative sources, such as financing, fees, subscriptions, and memberships.
3. Retail Profit per Transaction
Another offshoot of CLV calculates the profitability of a retail operation on a per-transaction basis. It can be used to analyze sales data from all channels, including online and in-store, and it works with all types of fulfillment. This metric provides an accurate assessment of all retail profits except for ancillary services, and it measures both gross and operating margins.
While it includes fulfillment costs in its analysis, retail profit per transaction doesn’t factor in alternative revenue sources, nor does it consider back-office expenses or overhead costs. By contrast, sales productivity metrics available in POS systems include tools for measuring each employee’s sales productivity, as well as how marketing decisions impact product revenue and profit margins.
4. Enterprise Value
While CLV emphasizes creating value, enterprise value (EV) focuses on capturing value. It represents the traditional approach to measuring a retailer’s value. Investopedia describes EV as a way to determine a company’s total value as an alternative to equity market capitalization, which entails a more thorough calculation.
EV is calculated by combining the market value of equity (or market capitalization) with the market value of the company’s debt, and then subtracting the firm’s cash assets. The following three sales metrics are components of a retailer’s overall EV calculation. The goal of all three is to balance investment efficiency with a retailer’s revenue and profits.
5. Revenue Growth
The top-line perspective of a retailer’s sales performance measures the company’s growth across all its operations. It combines revenue figures from core retail operations with those from its non-retail activities. Growth is measured across online and traditional channels, as well as fees, services, and other ancillary operations. Revenue growth is especially effective in measuring the progress of digitally native online sales operations. It should be noted, however, that this metric doesn’t account for profitability and doesn’t break down revenue performance by channel.
6. Free Cash Flow
Retailers get a clear view of their controllable cash flow as it relates to their current investments by using the free cash flow (FCF) metric, which indicates the amount of money that is available for shareholders and investing in future operations. This metric measures the retailer’s profitability and investments for its entire operation, but it doesn’t report information about specific segments of the company.
FCF contrasts with cloud-based POS systems that generate sales reports by showing revenue by product, department, category, or as a percentage of sales by various customer types, such as new and returning.
7. Return on Investment Capital
Retailers constantly struggle to ensure their operations keep pace with technological innovations and trends. Return on investment capital (ROIC) calculates the benefits of investing in new technologies and updating operations. This method is especially helpful in times of disruption by giving retailers insight into opportunities created by innovations.
ROIC determines the efficiency of capital spending on promising investments, as well as the amount the company needs to reinvest to drive growth and sustain profitability. However, the metric doesn’t provide insight into specific investments.
Do You Have the Tools to Calculate the Sales Metrics That Matter?
Important considerations when choosing a sales management tool include how simple the system is to use, how accessible its sales-reporting tools are, and how relevant the information in the reports is to the company’s operations and strategic planning. By integrating sales analytics with the business’ POS system, retailers can gain insight into the best ways to meet their customers’ needs today and into the future.
When you partner with talech for your retail technology needs, we devote our time to identify your business challenges. We use this information to work with you to apply an innovative POS solution that will provide you with the sales metrics that matter to your business, helping you reach new levels of success.