Top 10 Ways To Reliably Measure Performance In Retail (Part 2)

It's quite easy to hold to the mantra that cashflow is everything and that achieving increased sales figures is merely a vanity to make us feel good. Both can be true, but it’s the complexities of these businesses that cannot be ignored.

We have locational challenges; products to consider; customers to look after and staff to manage and nurture. On top of that, we have business equipment to consider; weather; processes; authorities; seasons; holidays; injuries; road closures; theft – to name just a few. Consequently, simply aiming at one factor or measure is just not enough.

One simple reason for not being on top of all of this is that our industry is, for all sorts of very good reasons, not awash with seasoned professionals. We have farmers who started life on farms and then set up and now run substantial retail and food-service enterprises. We also have all sorts of career changes from individuals with a passion for food looking for a new direction. So, it’s no surprise that there can be plenty of gaps in their knowledge. Yes, much can be learned 'on the job', and plenty of people do ask for advice.

In most cases, however, we are looking at new skills and experience and it’s their careers and their cash; therefore, a clear understanding is essential. I should also mention that time is often a challenge with many working up to seven days a week, more than filling working days with trading hours, customers, administration and everything else.

So, little surprise then that stopping to have a good look at what's going on in a wider context often falls by the wayside..!

KPIs - A Measure Of Success

I am sure we have all heard of KPIs – Key Performance Indicators – a series of metrics used to measure performance. In case you haven't, here's a guide when deciding on yours.

Every KPI should have two key attributes. It should be:

Here are some ideas to focus the attention of business managers such that they can set goals and standards that are not simply the data from a P&L.

#6: Budgets

In my experience, smaller businesses rely less on a budget and more on simply making regular comparisons with previous periods; within a limited number of measures and hoping for growth.

Larger organisations require budgets both to set targets and forecasts and to plan for investment; capital expenditure and profits/dividends.

Personally, I find budgets and the planning process extremely useful for analysing performance; involving the team and setting targets.

#7: Stock Management

Stock / Inventory turnover is a critical ratio that retailers can use to ensure they are managing their stock well. It can be one of the KPIs used to measure the overall performance of your business.

Put simply, it is how many times during a certain period you sell and replace your entire stock. Most farm shops are not thrilled when they find out they have excess stock.

Storage costs, insurance, damage and out of date items can add up. These costs will only continue to rise if your excess stock numbers climb. This is why stock management is such a good measure for your business. When you trim away your excess through stock management, you leave your business running better.

Stock turnover is the number of times that a retailer sells and replaces its inventory. It is a measure of the rate at which merchandise flows in and out of your shop. The stock turnover ratio is calculated by dividing the cost of goods sold for a period by the average stock for that period. The average is used instead of ending stock because of fluctuations during the year.

As a retailer, it is important to ask yourself whether your merchandise is turning faster or slower than it was this time last year. High stock turnover is key to keeping shelves stocked with fresh produce and keeping the cash flowing. In general, higher stock turnover is a good indicator that you're moving merchandise, which should mean that business is good.

#8: Employees

We are as we know, only as good as our front line. (i.e. Our team) To keep on top of how your staff are doing, you will probably need formal ways of measuring their performance.

#9: Benchmarking

Benchmarking is a way of improving your understanding of your business performance and potential by making comparisons with other businesses. This is a difficult one in the farm shop world as we have such diverse operations and few relevant measures.

Further, your market position and your objectives, among other things, will affect the specific comparisons you would like to make. In general, the same rule applies to benchmarking as to choosing which performance measures to use. You should focus on those areas that drive business success in your sector - your key drivers.

You can, however, also benchmark internally within your business. For example, comparing employment rates between departments may enable you to spread good working practices from the best performing areas of your business. Benchmarking data should be used in the same way as any other performance measurement data you generate - as a spur to improve the way your business operates.

I would encourage farm shop owners to get out and see what the competition is doing – Even if this is 200 miles away. In my experience, unless you really are next door, farm shop owners are both proud and open about their businesses. You may find a very useful afternoon exchanging all of the areas I have discussed above.

#10: What Others Say

If you were to engage a PR agency, one measure they would use to demonstrate how good a job they are doing for you is to convert media coverage into monetary value. The bigger the readership of the publication, the higher the value. In our world this is limited, but I see no reason for not using reviews as a measure of success.

We also have the consumer review – with probably the most well used being TripAdvisor. Now this is more on the food-service side, so not for all. However, it can be used as a general KPI.

For example, if you add the % under Excellent, Good and Average as being acceptable, and set yourselves a level to achieve – say 75%, then you can measure improvement. Now I appreciate that TripAdvisor is a mixed blessing; we have all experienced negative reviews – all the more galling when we had actually and positively dealt with the complaint at the time with apologies, replacements, free stuff – and sometimes even this is not enough for some and they also write a poor review.

On the whole, though, TripAdvisor will identify trends and never forget. It is used by 490 million people worldwide of whom 11% are in the UK and who visit on average between 6 and 12 sites before making a booking.

I have written previously in detail about the merits of awards. They can be another measure of success, an additional benchmark, and useful for improvement and reward.

A Final Word

Despite what you might think, measuring your business is not really that scary and it is rewarding. That said, it takes time and thought.

Apart from the obvious financial measures, with some considered analysis and actions taken, you may find yourself simply running a better business.

That's got to be a good thing for all concerned!