Tuesday, May 3, 2011

Benchmarking your retail performance

As retailers, we’re always striving to do better. We have previously suggested that benchmarking can help give retailers the unique perspective they need to improve their overall performance. But the question remains, what value can be added to your retail business by benchmarking your performance against other like retail businesses? Here we suggest 4 areas where your retail business can be improved and made more effective from the use of benchmarks.

Sales Effectiveness.By measuring sales, you can determine if your retail business is achieving it’s optimal level of sales on a daily, weekly, monthly or annual basis. Using sales is an obvious measurement tool, but understanding how other retail businesses are performing versus yours can provide some future goals that your business can reach for.

Merchandising Effectiveness. Determining how effective your merchandise assortments are and measuring turnover performance will help maximize your gross profit to it’s fullest potential. Utilizing measurements for like industry businesses can showcase any room for improvement your business can make.

Marketing Effectiveness.Using benchmarks to measure the investment in marketing for your retail business can determine if you are achieving the appropriate level of incremental sales and profit with your marketing dollars. Spending money on marketing activity is critical to your businesses’ long term success, so understanding the return on investment you should expect can give you performance metrics to achieve.

Management Effectiveness. Benchmarks can help you determine if your investments in non-sales generating overhead are appropriate for a business of your size. Recognizing any cost savings that can be achieved or reductions in overhead that are necessary will help improve your overall expenses and improve bottom line profits.

Understanding that benchmarks can measure both internal and external company effectiveness, the next step in setting up a benchmarking practice for your retail business will be to determine what you want to measure. Determining which benchmarks to measure should align with your strategic and operational goals for the business and be appropriate for current stage of your business life cycle. Some possible benchmarks for your business to focus on include:

•Sales Per Transaction
•Customer Conversion Rate
•Sales Per Employee Hour
•Average Inventory Turn
•Average Inventory Shrinkage
•Sales Per Square Foot
•Average Gross Margin Percentage
•Sales Per Marketing Activities
•Sales Per Promotional Investment
•Overhead Percentage Of Sales
•Operating Margin
•Return On Invested Capital
•Sales Per Working Capital Invested

(Note: When gathering comparative benchmarking data, choose the industry figures that best fit your company descriptions. Unless you measure against your own industry standards, you won’t measure your business within the right industry context.)

Setting up a benchmarking process for measuring your business effectiveness can help insure the long-term success. Looking outside the walls of your retail business will help you to gain internal knowledge that can and will lead to improvements in your businesses’ bottom line results.

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