by Christine Jaros | August 4, 2022
In part one of this article, we discussed three myths that come with owning a retail business, and the first three dashboard metrics that retail business owners should be tracking, and why. Those metrics were an inventory report, production status, and unit plans.
Below, you’ll learn about the final five dashboard metrics you should be tracking and get some tips for how to track those metrics easily. So, let’s get started.
1. Sales (Weekly Sell Through Percentage and Turn)
The sell through percentage metric measures the rate of sales based on your inventory levels. The calculation for this metric is as follows: weekly sales divided by on-hand (available to sell) inventory. The more one sells, the greater the sell through percentage. This metric is coupled with another important measure of selling success – inventory turnover. The more a company sells, the greater the frequency of having to replenish inventory levels, especially if they want to continue driving sales volume. The calculation for inventory turnover is as follows: total sales divided by on-hand inventory.
Most businesses would be happy if they turn product three times a year, whereas more successful retailers aim for six or more times a year. Since turn becomes a measure of profitability, the more you sell, the more you turn, the more profit you have. If you sell 6% of your inventory every week, in 52 weeks, you will have turned your inventory 3.12 times (52 x .06 = 3.12).
Tracking top-line sales is evidence of the speed to which you are converting your inventory to revenue. By keeping an eye on your sales, you can better manage your stock needs. Additionally, if you are marking down (reducing your selling price) to increase the speed of your sales, you are also lowering your profit margin. When inventory is old, there is low quantity on a style, or there are broken sizes (or damages/quality issues), it’s prudent to reduce the price and clearance it. However, be aware of how your reduced price point affects your gross margin.
2. Weekly Shipments
For some retailers, a sold unit turns into a revenue unit once invoiced or charged through shipping.
3. Sales-to-Stock Ratio
For any of you who are familiar with the iconic 80s movie, “The Karate Kid,” I call this report the ‘wax on, wax off’ report. This report is tedious to set up, but it is the essence of selling brilliance.
For instance, if you know a style is 10% of your total inventory, but you only sold 1% last week, it’s either overpriced, old and outdated, not getting exposure, or just plain bad for business. This information turns on your bright lights and allows you to address the issue before it’s a flat tire that halts your progress.
On the other hand, if you have a style that’s 10% of your weekly sales, but only 1% of your stock, you are leaving money on the table. Not only is it a best seller, but you need more of that style or similar styles. Just be careful not to overdo it as too much of a good item will kill demand. You don’t want to overheat.
4. On Order Receivable
If you sell forward – like with subscription boxes, lay away products, or you offer your customers payment terms, you will want to track how much revenue is outstanding by 30, 60, 90-days, and more. The older the receivables, the more likely you will encounter problems like fulfillment shortages, order cancellations, and non-payment.
5. Customer Flow
Transactions are all about your customer flow. Low numbers with high sales mean they are buying bigger ticket items. However, you will want to develop a loyal customer base that shops often and responds to your new merchandise flow. Never forget – customers are your carriage, as well as the lifeline of the business.
Full speed ahead
It’s time to put together your dashboard metrics. Customize a spreadsheet that keeps you in- the-know and helps maintain your financial health. Try starting with the metrics below:
- Sales: You may want to track weekly, monthly, yearly, as well as this year versus last year, and this season versus last season.
- Weekly sell through percentages
- Inventory: You will want to track raw materials (if applicable), work in process (if applicable), and finished goods (on-hand). Remember, if you’re importing, you may have goods in transit coming to you from your factory, and these are worth tracking as well.
- Inventory turnover (turn)
- Number of transactions
- 30, 60 and 90-day receivables or on order sales.
- Estimated gross profit percentage
Once you have built time in the business, you will want to reference last year’s numbers (LY) and the percent surplus or deficit over this year.
Remember, this rearview will give you perspective and inspire you by providing a map to reaching the next level. Experienced retailers make numerical analysis a top priority in their calendar. Create a routine where this is done every Monday. The results of your analysis will open the road, set your direction, and drive your activities in the business.
When you do a great job, don’t forget to toot your own horn. We all know there will be dips in the road, but the tenacity you have as a small business owner will propel you into the future.