Part 1: Knowing Your Numbers— Understanding the Key Metrics Driving Your Retail Business
A saying you’ll often hear parroted by the Boon team is, “Know your numbers!” More than just a catchy phrase, it’s a guiding principle that can make or break your retail business. “Knowing your numbers” is our short-hand for being aware of your KPIs and critical metrics. Read on to understand more of what “knowing your numbers” actually means and how knowing empowers your business.
Knowing Your Numbers: Understanding the Key Metrics Driving Your Retail Business
From sales cadence to inventory turnover, small and big businesses alike need to be well-versed in the metrics behind their brands if they want to confidently navigate the complex retail industry.
In this article, we’ll dive into what it really means to “know your numbers,” explore the key performance indicators (KPIs) every retailer should be aware of, and highlight the challenges that can arise if you’re neglecting your spreadsheets.
Just a warning—there’s a lot to this topic! We’ve done our best to lay out all the information, and are actually dividing this into 2 parts to help keep things clear. As you read both parts if you’re unsure of where to start, contact our team to learn how they can help you build a customized plan for your business.
So, what numbers do I actually need to know?
For many retail owners, especially those who find joy in the more creative aspects of building a brand, knowing your numbers seems like a daunting prospect.
And while the numbers we’re discussing today go beyond basic arithmetic, an advanced degree in mathematics isn’t required (thankfully!).
“Knowing your numbers” is essentially shorthand for having a thorough understanding of the metrics that drive your business forward. At Boon, we look at a business’ numbers in two primary ways.
The first set of numbers are your key performance indicators (KPIs)—these are the core metrics you should know like the back of your hand—the ones that give you a sense of your business’s overall health. These include cost, sales plan, initial markup percentage (IMU%), and average weekly sales.
The second set of numbers is your supporting data, data that help you stay abreast of your business’ seasonal performance or are specific to the type of retail business you run. For instance, a bakery might track numbers related to raw materials, production speed, and perishable goods, while a sportswear company may emphasize SKU sales distribution and seasonality. Supporting data is likely to change more frequently than your core KPIs and include standard retail metrics like open-to-buy (OTB), on-hand inventory, sales by SKU, and week-over-week (WOW) sales.
When it comes to tracking retail numbers, the list is extensive, so this week’s post will focus on the numbers associated with sales. In the retail world, we know it’s all about the Benjamins so let’s kick off a numbers-focused post with the most exciting bits!
A beginner’s glossary to key retail sales metrics & KPIs
Understanding the nuances of your industry will be key to identifying the most impactful numbers to your business (and helping you stay in the black!). Below we’ve compiled a list of most commonly tracked numbers by businesses that sell physical products to help you identify which line items are right for you.
While all of the metrics listed below may not be vital to your business, we’ve seen many examples of clients who overlooked specifics in favor of generalities (Spoiler alert: It doesn’t turn out well!), so we wanted to provide everything so you have a full breadth of what’s out there.
First things first, you need to know how much things cost. No matter how many items you have in your assortment, knowing how much they cost is key. Memorizing a few metrics around cost and retail price will empower you to do some quick calculator math as you analyze your sales. There are more cost metrics we’ll define next week but we’ll keep things simple and focus on these for now.
Cost and Price- Key retail metrics for analyzing your items and margin rates
** indicates a KPI that we recommend you know off the top of your head.
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The total cost for you to produce a single product, which includes costs associated with raw materials and production
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A common retailer metric used to determine the initial retail price of their products.
To calculate your IMU% you can use the following equation:
($ Original price-$ Cost)/$Original price = Initial Markup % -
How much it costs you to buy the material needed to produce an item for sale
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How much your customer pays for your product.
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How much it costs to create your finished product.
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How much it costs for your product to get to a customer.
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How much it costs for your warehouse to store inventory.
Sales - Key retail metrics that analyze your revenue, rate of sale, and profit
** indicates a KPI that we recommend you know off the top of your head.
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Represents the increase in sales you see in response to an advertising campaign or marketing promotion. Your ad lift should typically be at least a little more than your average weekly sales (AWS)
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Helps you track the velocity of sales during a specific period of time. Most retailers track this weekly and use it as a comparison tool.
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The sum of a company’s gross sales minus its returns, allowances, and discounts. It’s helpful to look at this both by dollar amount and units.
To calculate your net sales, you can use the following equation:
Retail Purchase Price - (Raw Material Cost + Production Cost + Shipping Cost + Storage Cost) = Net Sales or Revenue
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A metric you calculate to determine your sales opportunity. Potential sales should be factored into future sales forecasts for similar items and similar promotional values, and factored into future plan sales.
For example, if you run a promotion where you forecast selling 100 units across a period of 7 days, but people loved your item, so you sold out of all 100 units in 4 days. The next time you plan a promotion, you would calculate potential sales by figuring out, based on the rate of sale you saw in those 4 days, how much MORE you could have sold if you'd had unlimited inventory to continue selling.
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Forecast denotes how your business is tracking to your sales plan. Measured in dollars, units and percentages, your forecast will vary throughout the year as you may be up (+) against plan or down (-) against plan.
Your forecast is always changing and will likely need to be adjusted, based on sales your actual sales performance.
We guide clients to do the practice of forecasting monthly, if possible, depending on the size and complexity of their business. Continually forecasting can help you avoid costly mistakes in over or under buying inventory.
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Similar to sales by item, but focused on where sales are happening in your business. Not every business will need to review sales by store or region, but analyzing your business by a common place clues you into different trends across geographical areas.
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Sales should be tracked by item and ‘rolled up’ into categories so you can view sales performance across product characteristics like color, size, purpose, or another attribute. Not every business will use the same method for categorization, but analyzing by a common attribute is a helpful way to make strategic inventory decisions based on patterns driving performance in your business.
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Your sales plan is your best educated guess at how your sales will go for the year, and should be divvyed up by key time frames as well as each item in your assortment.
Most businesses create a plan at least once a year, far in advance of your selling period. Your sales plan is essentially set in stone, and should only change under extreme circumstances.
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This can vary depending on your business needs. Depicts how long you anticipate selling any particular item including regular sales, markdown sales and clearance sales, before a liquidation plan needs to be determined.
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Indicated by a percentage or a decimal, sell-through is the total amount of inventory sold during a specific time period compared to the amount of inventory on hand during the same period.
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A comparison of this week’s sales versus last week’s sales.
OK. Take a breather, and remember you don’t have to be an expert overnight —or ever.
Numbers associated with sales illustrate the money that’s coming in to your business. The sales you plan for your business for the year, month or week are a foundational part of your ‘demand plan.’ Give yourself a pat on the back, you unlocked understanding of a critical retail planning function!
You can see from the long list of KPIs and ‘numbers to know’ that while the concept of ‘demand planning’ seems easily summarized by two words, there is A LOT to master. If you’re just starting out and your proverbial ‘warehouse team’ is you operating out of your home, many of these numbers you WILL know off the top of your head because you’re physically managing each sale that happens. You’ll probably be able to check the box of ‘knowing’ many of these numbers easily — just don’t stop there.
Similar to learning any new skill, taking time to learn the ‘why’ behind what you’re doing will help you plan for the future and avoid rework. Establishing a process for tracking these numbers and reviewing them strategically will put you in a smart spot as your business grows. There can be a lot to keep track of when you ‘make it rain,’ but hopefully it’s still exciting to think about the revenue that’s flowing!
What should I do next?
We know this is a lot—so we’ve got a few tips for you to try.
Option 1 - Create a Demand Plan for your business
If DIY gets your juices flowing, set aside time to create a sales plan and forecast for yourself. Your selling platform will likely have a number of reports outlining your sales in various ways so you can review your history and create a projection for the future. Establish a way for you to track and analyze your business’s sales in detail and repeat it on a frequent basis so you stay informed about how your business is performing.
Option 2 - Download our Sales Recap Tool
You might have all the math and excel skills in the world, but chances are you have a million other things to do. Whether you’re the business owner or a key player on the team, you’re probably wearing a lot of different hats. Rather than devoting valuable time building a process from the ground up, lean on our expert team. We’ve already built a tool that will empower you to analyze your sales by category, key time frame and top and bottom selling items. Capture all of your essential KPIs, and numbers-to-know and easily digest the information with our customizable template. The Sales Recap Tool is a one-time $249 purchase — we’re sure your time is worth at least that much.
Option 3 - Set up time for a discovery call
The Boon team has over 150 years of experience in sales and inventory planning, we’re speedy professionals that have seen it all in the retail world. If your business has layers of complexity that you’re not sure how to manage or if you find yourself struggling to identify the right sets of numbers to track for your business, make an appointment with our team of specialists. We’ll take care of managing all your numbers in a snap and save you the time and stress of doing it on your own.
Stay tuned for next week - key inventory metrics comin’ atcha!
The key behind stacking paper is your sweet product so we have to talk about what numbers you need to know to be the savviest retailer on the block. Our next post will define the critical metrics and KPIs you need to know to fuel the fire for your sales. Keep yourself in ‘the know'. Subscribe to our newsletter and be the first to read the numbers we suggest to all of our clients at Boon.
