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Key Performance Indicators - Analyzing Melbourne Retail Businesses

A key performance indicator (KPI) is a type of performance measurement. Accountants, Bookkeepers, and to a great degree CFOs use KPIs to evaluate the success of an organization or of a particular activity in which it engages, These occur regardless of region whether simply in just the Melbourne, GA region or elsewhere around, the US. Same principles apply.

Key Performance Indicators (KPI’s)

The examples below are for a Retail Store

· Sales compared to budget/target:

Actual sales divided by budget/target sales

Ex: Projected March sales of $235,500 and actual March sales = $246,387 $246,387/$235,500 = 1.046 or 4.6% above projection

· Sales compared to last month/year (or any other period):

Actual sales for a given period divided by actual sales for the period you want to compare to

Ex: Last month’s sales were $164,555 compared to same month last year of $189,403 $164,555/$189,403 = 0.869 or Last month’s sales were 87% of same period a year ago

· Sales per Square Foot:

Actual sales for a given period (usually a month or a year) divided by the total floor area (in sq.ft.) of the store or department. There are variants of this indicator in terms of sales per square foot of merchandisable area of choice (like walls and display units.)

Ex: Last month’s sales = $164,555 and the store’s sales floor area is 9,550 sq. ft. $164,555/9,550 = $17.23 per sq. ft. of sales area

· Wage Cost (Labor Cost):

Actual wages paid for a given period divided by actual sales achieved for the same period

Ex: Last month’s sales = $164,555 and last month’s wages paid were $14,085 $14,085/$164,555 = .0855 or 9% wage costs

· Average Sale per Customer/Transaction:

Total sales for a given period divided by the number of transactions for the same period

Ex: Last month’s sales = $164,555 and last month’s transactions were 2,856 $164,555/2,856 = $57.62

· Units per Customer/Transaction:

Total number of units sold divided by the number of transactions for the same period

Ex: 5,321 units sold last month to 2,856 customers. 5,321/2,856 = 1.86 units sold per customer

· Conversion rate:

The number of transactions in a given period divided by the total number of customers who entered the store during the same period

(Must be careful in how number of customers entering store are tracked as seasonal changes and large groups entering a store can skew metrics)

· Sales per Hour (for store or associate) – selling hours only:

Actual sales for the store divided by the number of selling* hours during the same period. (*selling hours are used here rather than total labor hours)

Ex: Last month’s sales = $164,555 and last month’s selling hours were 284

$164,555/284 = $579.42 per selling hour

· Sales per Hour (for store or associate) – total labor hours:

Actual sales for the store divided by the number of labor hours used during the same period

Ex: Last month’s sales = $164,555 and last month’s labor hours were 943

$164,555/943 = $174.50 per labor hour

Answer the following to begin to develop a Performance Improvement program:

1. What should you be measuring to best understand and manage the performance of your business?

2. Identify the top 3-5 KPI’s and determine measurements and ways to generate regular updates for each.

Remember to keep it super simple.

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