The Three Critical Business Measures Which Can Turn Around a Retail Business

There are three key measurements which can guide better quality business decisions. These three measures are more valuable than others since they focus on the return achieved by the retail business against key cost/risk points.

   1. Stock turn.
   2. Return on investment
   3. Return on floor space.

The inventory of the typical retail business often represents the largest allocation of capital outside the shop fit itself (in some cases). The sale of inventory is the key source of income and through this business operating profit.

Stock Turn is a ratio that compares average inventory value to sales revenue. While it can be calculated using units, cost dollars or retail dollars, the recommendation of experts is that retail is the best approach.

The calculation is based on dividing the annual sales by the average inventory value. This calculation can be done by item, category, department or the business as a while.

The are usually benchmark numbers available for comparing stock turn with other businesses in your field. This is where stock turn is useful in comparing the inventory efficiency of one business over another.

If the stock turn rate is too low, it usually means that the business has too much stock or the wrong stock. If the stock turn number is high, it means that the business could benefit from more stock.

What is too high and what is too low will depend on the nature of the business.

Return on investment is the amount of profit the business will realize in return for a specific expenditure of money, usually express as a percentage of the original monetary outlay. In terms of inventory, it reports the profit return from an investment in stock being achieved by the business.

ROI is a cash flow metric which is used by analysts in a range of business situations. It is most useful in retail for comparing performance between product categories.

Return on Floor space. This is a calculation done on revenue and gross margin per square foot of retail floor space. This calculation is particularly useful in shopping malls and other locations where retail rental costs are high.

Retailers who measure and track these three Key Performance Indicators will find that the quality of their business decisions improves with time.

Using good inventory management software, retailers can automate the gathering of data necessary to calculate the important numbers and keep track of them over time.

Good data is essential to calculating these and any other key performance indicators. Poor data will lead to poor business decisions. This is why it is essential for retailers to use the right software and to back this with disciplines with employees to drive their proper and professional use of the software.

Better data makes for better decisions and better decisions makes for increased profits for the business and sustained employment for employees.