When choosing a retail space or an office space, location is key. Nearby property values, position along major highways or thoroughfares, desirable addresses, and amenities are all part of calculating the value of a commercial property.
The importance of retail location cannot be overstated. The identifiable metrics for predictable sales include location-based analyses like foot traffic, proximity to similar businesses, parking ratios, local population demographics, and ease of access. All of these are related to where a retailer chooses to lease a building.
Number of Customers (Customer Traffic)
A number of customers are the most straightforward metric for your retail business. Even a child gets that the place that’s crowding with customers must be doing good. You normally don’t go to an empty restaurant, don’t you?
Customers are the sole source of money for your retail business. As Karl Marx had it, human work adds real value to land and capital. For a retailer, the more potential customers you get into your shop, the more money they’ll likely leave behind.
Customer conversion ratio = No of Transactions / Customer Traffic x 100
Average Sale (Average purchase value)
Alright, now you have two essential retail metrics to watch. Going more in depth, you’ll be interested in your average sale value. How money dollars, pound, yen or euros your average customer spends in checkout? How has it changed over time?
So, you have been working on getting more people into your store, and tried to make them buy each time they visit your store? Calculate the average sale, also called average order value. It’s the moment truth in many cases.
Even a business with unsophisticated technology can very easily measure the average sale, but surprisingly they don’t. It is measured by dividing the total sales value ($) by the number of transactions. Keep in mind the same customer could initiate multiple transactions; AOV determines sales per order, not sales per customer.
Average sales order value = Total sales value / Number of Transactions
Effectivity (Retail Conversion Rate)
Alright, we already had to distinguish retail visitors and retail customers. Some visitor doesn’t buy anything. It’s rather unlikely in a big shopping mall, but very common in specialty stores or luxury boutiques.
In e-commerce, we’re talking about customer conversion ratio. This shows how many visitors a retailer turns into a buyer. It’s easy to calculate if you already know your retail customer traffic. Just take the number of retail transactions and divide in with the number of people who visited your store. And multiply by 100, if you want a percentage.
Gross margin (Sales profit before costs)
Gross margin is the difference between revenue and cost before accounting for certain other costs. Generally, it is calculated as the selling price of an item, less the cost of goods sold. It’s rather basic math for business to know how much it took you to acquire or produce the thing you’re selling.
Product price when sold = Product acquiring or making price + Gross margin
Items per purchase (Size of an average shopping cart)
In the retail business, especially brick-and-mortar outlet, a sold item more roughly estimates for added revenue. It also brings along handling costs like inventory carrying costs, transaction time and salary of sales associates, needs for retail space.
Your point of sale system should be capable of providing you with pretty exact data. If your transaction volumes are low, the number of items may seem insignificant, like a carton of milk equal to an iPad sold. When the sales volumes are higher, it starts making much more sense. If your retail business keeps up good averages per purchase, but the number of items is rising, it means people are buying cheaper products in bulk.