When retailers review their sales figures for the day, week, month, or quarter, the numbers can tell them whether sales are up, down, or steady, but they don’t tell them why. To get the full story on sales performance, a growing number of retailers rely on the data analytics built into their POS systems.
Sales performance analytics has become one of the most important features of modern POS solutions, yet the analytics approach that works best for one retailer may not be the optimal method for another. The goal of sales performance analytics is to give retailers insight into why some products fly off the shelf and others collect dust. Analytics also helps stores figure out why certain campaigns and strategies boost sales and others fall flat.
These tips will help retailers determine not only what’s selling well now (and why), but also which products will be tomorrow’s hot items and which will languish on the shelves.
Choosing the Sales Metrics That Best Reflect Your Operation
Perusing raw sales data is like looking at the ingredients of a four-course meal before it’s been prepared. The analytics component of a sales reporting system is like the chef who masterfully combines the various ingredients into a feast.
There are eight different sales metrics that retailers can analyze to gain new perspectives on their business’ performance:
- Sales per square foot helps plan inventory and calculate return on investment; it is commonly used to set the rent for retail spaces.
- Sales per linear foot of shelf space is used to determine how much space to devote to various products on retail shelves.
- Sales by department or category facilitates comparing the percentage of total sales from various product types.
- Inventory turnover indicates which items the store understocks and overstocks to help avoid tying up much-needed cash with unsold inventory.
- Gross margin return on investment combines several individual metrics to indicate the store’s profitability more accurately than is possible with inventory counts.
- Items per transaction is sometimes referred to as sales per customer or sales per transaction; it is commonly used to calculate the productivity of sales staff.
- Sales per employee helps retailers set optimal staff levels and plan for future employee hiring.
- Accessory percentage acknowledges that much of a store’s profit is derived from the second and subsequent products a customer purchases; it helps identify staff who are adding items to sales and typically accounts for about 10% of all sales.
Taking Advantage of the Sales Metrics Built Into Modern POS Systems
The most effective way to implement sales performance analytics is by tapping into the tools built within a cloud-based POS system. Success in the retail environment of today and tomorrow depends on a store’s ability to identify and act on trends more quickly and effectively than the competition.
These are the seven sales metrics that can be measured based on the sales data collected by your POS network:
- Customer lifetime value calculates the value created by retailers when they gain a customer and the total value the customer returns to the retailer. It is determined by multiplying the average annual revenue per customer by the number of years the person is your customer, minus the cost of attracting the customer via marketing or promotions.
- Sales per unique customer helps stores adapt to changing customer preferences. It measures the total amount a customer has spent at the store in one year, or what they spent for a single large purchase within that period. This makes it easier for retailers to calculate profitability and profit margin.
- Retail profit per transaction determines the per-transaction profitability of a business by analyzing all profit except revenue generated from ancillary services. This measure considers fulfillment costs as part of the analysis, but it doesn’t factor in overhead or back-office costs.
- Enterprise value is designed to calculate the retailer’s total value much more simply than using the equity market capitalization technique. The value is assessed by adding the market value of equity or market capitalization to the market value of the business’ debt, minus its cash on hand.
- Revenue growth is a component of enterprise value that measures a retailer’s growth across all of its operations—core retail, non-retail, online and traditional sales channels, and all other fees and services it offers. While it can’t show the business’ profitability, it is effective for finding the value of online sales.
- Free cash flow lets retailers know the amount of money that is available to distribute to shareholders or use for future investments in the business. While it shows the overall profits of the operation, it doesn’t break the figures down by segment.
- Return on investment capital indicates how much profit the retailer has realized from its investments in new technologies and other enhancements to the business. It helps stores determine the efficiency of their capital spending, and the amount they need to invest in the future to reach their revenue goals.
Using Sales Performance Analytics to Drive Marketing Decisions
Sales analytics can be applied to improve all aspects of a retail business. For example, sales staff can realize tremendous productivity boosts by using sales data to better understand the tastes and preferences of customers. The data also helps managers reduce the amount of time employees spend on administrative tasks and other non-sales responsibilities.
The information gleaned from POS sales data helps retail managers be more responsive to changes in the market and customer behavior. The system can prompt staff to offer personalized discounts, product combinations, and other promotions in real-time as they interact with returning customers. Product mix analysis automatically calculates which product combinations will generate the most profit for the business.
The more relevant sales information retail managers have at their disposal, the more accurately they’ll be able to forecast future revenue and calculate the return on potential investments in the business. Cloud-based POS systems featuring integrated sales performance analytics allow retailers to capitalize on opportunities and avoid pitfalls.
When you partner with talech for your retail technology needs, we devote our time to identify your business challenges. We then use this information to work with you to apply an innovative POS solution that will provide sales performance analytics you can use to optimize your business.
Want to learn more about sales analytics for your business?