By Tom Haney on October 26, 2020
If you don’t know your numbers, you don’t know your business—or so the saying goes. Have you been going on instinct? Then you’re probably in the dark. You need to dive into the data to gain a real sense of your company’s performance and return on investment.
Enter key performance indicators (KPIs). Why are they important? They enable you to quantify your business and measure progress against goals, targets, and peers, thereby helping you improve profitability, drive sales, and control costs.
What Is a KPI?
A KPI is a metric or data point used to evaluate a company’s long-term performance in relation to (1) a set of strategic targets or objectives or (2) industry peers. As renowned business and technology advisor Bernard Marr puts it, “KPIs are vital navigational instruments, giving a clear picture of current levels of performance and whether the business is where it needs to be.”
When it comes to retail, the most critical KPIs provide insights on sales, inventory movement, growth, and customer satisfaction. Think of them as a roadmap to profitability.
Major KPIs Worth Tracking
Here are five key performance indicators that every business should be looking at.
- Total sales. This basic metric is crucial: it provides a good starting point for an overall analysis and overview of your business. You can get more detailed and monitor sales by the hour, day, week, month, quarter, or year. The total sales KPI allows you to see your progress over the year and compare it to the previous year (if, in fact, you had a previous year), your sales goals, or your competitors.
- Gross and net profit. Technically, these are two separate KPIs, but they are worth highlighting together. A business’s gross profit refers to its overall profit less the cost of goods sold, while net profit margin is the overall profit minus all expenses, including rent, administrative costs, and operating expenses. These KPIs are important because they tell you how much money you are actually taking home. A few ways to improve your margins: streamline operations, cut low-margin products in favor of high-margin ones, and, our favorite, reduce your payment-processing costs.
- Conversion rate. Conversion rate is the ratio of store visits (or website visits) to purchases and is expressed as a percentage. For a brick-and-mortar store, this would be the number of customers divided by the number of purchases; for ecommerce, it would be the total number of visitors divided by the number of sales. In short, your conversion rate tells you how good you are at converting visitors into customers. For a brick-and-mortar business, a low conversion rate could reflect poor customer service or layout; in terms of ecommerce, potential conversion-rate culprits could be poor website design, unappealing content, or a clumsy checkout process.
- New customers vs. returning customers. Many businesses focus solely on acquiring new customers. In truth, however, customer acquisition is more expensive, while customer retention can enhance loyalty and result in higher order values. For more on the subject, Sekure Merchant Solutions wrote about it here. If new customers comprise the bulk of your sales, then you’ll want to consider ways to improve retention. A few ways to do this: interacting across multiple channels, offering customized recommendations, improving response time to complaints or inquiries, and implementing a loyalty program.
- Site traffic. Site traffic is simply the total number of visits to your store or ecommerce site. Site traffic can be divided into new visitors and returning visitors. The latter metric is particularly important in the context of marketing campaigns: a successful campaign should result in a higher number of returning visitors. When it comes to ecommerce, possible ways to drive traffic include boosting your social media activity, improving SEO, and running paid social-media campaigns.
With hundreds of possible performance indicators at your disposal, which key ones should you track? It ultimately depends on your business and your objectives.
But given today’s environment and the rise in ecommerce, KPIs that enable you to compare your in-store vs. online sales are particularly important. These metrics will allow you to compare your various sales channels and spot trends, thus allowing you to shift your business accordingly. Get in touch with a Sekure payment professional today and we’ll help you streamline your payment processing and save money.