The five numbers every store should check each week
Footfall, conversion, average spend, gross margin and stock turn: how to calculate, compare and act on them.
In this topic: Planning and control 11
Monday morning, coffee, last week's till report. Sales were lower than the same week last year. But why? Did fewer people come in, did fewer of them buy, or did they spend less? Revenue alone does not tell you, so it does not tell you what to do differently this week either. Kaplan and Norton wrote that financial measures alone can give misleading signals (source: Harvard Business Review, January 1992). In retail, that is true every week.
A store does not need a dashboard with forty charts. Five numbers, looked at the same way every week, tell almost the whole story. That holds for an independent retailer, for a chain's area manager comparing stores, and for the controller who reports on them.
Sales are a product of four numbers
Retail researchers break store sales down into passers-by, the share that enters, the share of visitors who buy and the amount a buyer spends on average (source: Marketing Science, 2001). That is more than theory. It means every drop or rise in sales has a cause in one of those four, and each calls for a different action.
Sales = passers-by × entry rate × conversion × average spend
Fewer passers-by calls for visibility or another location. A lower entry rate for a better window. Lower conversion for more or better service in the store. Lower spend for range, presentation and cross-selling.
The five numbers
| Number | Formula | What it tells you |
|---|---|---|
| 1. Footfall | Number of people entering the store, from a door counter | Whether the store attracts people. The basis for all other numbers. |
| 2. Conversion | Number of transactions divided by footfall | Whether visitors find what they want and are helped. Research defines conversion this way (source: Manufacturing and Service Operations Management, 2012). |
| 3. Average spend | Sales divided by number of transactions | Whether cross-selling works and the range fits (source: Manufacturing and Service Operations Management, 2012). |
| 4. Gross margin | Gross profit divided by sales excluding VAT | Whether discounts and markdowns earn or give away money. |
| 5. Stock turn | Cost of goods sold divided by average stock at cost | How fast money tied up in stock comes back as cash. Slow stock ties up capital and invites markdowns. |
For the month or quarter, add sales per square metre of sales floor. That number says something about the rent you can carry, but moves too little week to week to steer on.
How to read them
- Compare with the same week last year: not with last week. Season, holidays and weather distort week-on-week comparisons.
- Look at the combination: more visitors with lower conversion is a different story from fewer visitors with equal conversion.
- Busy hours lower conversion: research shows conversion falls as footfall rises (source: Manufacturing and Service Operations Management, 2012). At peak times, staff on the floor is sales.
- Look by day and hour: where the weekly total hides that Saturday afternoon is the problem.
- Set margin against discounts: sales growth through markdowns often costs more margin than it delivers.
- Compare stores like for like: in a chain, compare stores of similar size and location type, and look at trends rather than rankings.
How your cost structure compares with other retailers is visible in the sector data. More on KPIs in general in choosing KPIs and building a dashboard, and on the sector in retail trends.
The weekly store dashboard
Below you will find the complete KPI card with, for each number, the source in the till or the books and the signal to act on, an action matrix that gives the likely cause and the action for each combination of movements, a twenty-minute weekly routine and a worked example.