When running a retail business, it can be hard to find the time to step back and assess the performance of your store outside of just looking at sales numbers and revenue. However, tracking and measuring other performance metrics is crucial for any small business as the data these metrics provide can highlight growth opportunities and help inform business decisions such as product purchasing and employee staffing.
As an independent business, even if you are monitoring different metrics, it’s hard to know how your store compares to other small businesses. Vend recently released their retail industry benchmarks report so businesses can see how they stack up to the competition.
Average Transaction Value (ATV)
One of the most accessible performance-driving metrics to track is your average transaction value (ATV). ATV is the amount a typical customer spends when shopping in your store. To calculate ATV, divide the total sales from all transactions by the number of transactions. For example, if your monthly sales total $30,000 and you had 400 sales, your average purchase is $75.
According to Vend, retailers in North America have an average ATV of $56.44 in 2019. Keep in mind, ATV also depends on the type of store you are operating and the price point of your items. Fashion retailers have a much higher ATV of $92.55. Shoe and jewelry retailers have ATV’s over $100, whereas vape and specialty food stores have lower ATV’s around $30.
Other than raising your price point, the only way to increase sales is to increase your number of customers or increase how much they spend at each visit. ATV measures how much customers are spending, so improving ATV results directly in higher sales. Measuring your ATV for the quarter or the year provides a good indicator of how your business is performing overall. However, measuring ATV each day helps coach employees in the moment.
Customer Retention Rate
Customer retention rate refers to the percent of customers who keep returning to your store to make purchases. High customer retention rates typically indicate a healthy business with strong sales and strong customer loyalty. If your retail business is consistently bringing in new customers, but they only purchase from your store one time, sales will remain steady but not grow in any significant way. If your store brings in lots of new customers, and they keep coming back, your store’s sales will significantly increase.
To calculate customer retention rate, divide the total number of repeat customers by the number of total customers. Retention rate is typically expressed as a percentage, so then multiply that by 100. For example, if you have 400 total customers one month, and 100 of those are repeat customers, your retention rate is 25%
According to Vend’s report, retailers in North America have an average customer base of 808.82. Cosmetics, shoe, jewelry, and fashion retailers have the highest customer counts. The report only includes customers that retailers know of, meaning these categories might not have the highest actual customer counts, but they are best at collecting customer data.
Collecting customer data is crucial for measuring repeat visits and retention rates. Gathering customer data can be as simple as asking for an email address to send digital receipts. Many point-of-sale software systems also have features to track customers via their payment methods automatically.
Gross Sales and Profit Margins
Most retailers already know their average monthly and annual sales. But, do you know how your store compares to other independent retailers? Individual retail stores in North America make, on average, $22,289.03 per month. Alcohol, furniture, vape, and electronic stores are the highest-earning retailers, bringing in over $40,000 each month. Jewelry, sporting goods, shoe, fashion, and cosmetics retailers all bring in over $30,00 monthly.
Interestingly, the retailers with the highest monthly sales also have the lowest profit margins. The average gross margin for retailers is 53.33%. Liquor stores have a profit margin of just 35.64%. Sporting goods and furniture stores also have lower margins. However, cosmetics and jewelry stores have margins close to 60%.
To calculate gross profit margins, subtract the cost of your products from the sales revenue. Since margins are typically expressed as a percentage, divide that number by your revenue and then multiply by 100. For example, let’s say that you have a shirt that you sell for $60 and it costs you $15 to purchase that shirt wholesale. Your gross margin would be 75%, which is very good.
To increase profit margins, the easiest thing to do is raise prices. However, it may be more useful to calculate profit margins by individual product or product category and compare your highest-margin products with your most frequently purchased products. This data will give you a good idea of which of your best-selling products are bringing in the most revenue. Stock your shelves with more of these kinds of items. If you have any products that are selling exceptionally well but have meager margins, consider testing higher price points for those specific products.
Anyone can measure these metrics using a spreadsheet and numbers from your cash register. However, it is much more efficient with a point-of-sale system. Most POS systems calculate these metrics for you automatically, which saves a lot of time. Monitor your average transaction value, customer retention, and profit margin to strategize long-term growth and to spot any potential problems early on. A steady rise in any of these metrics indicates a healthy business and strong growth potential.