Question

Identify and describe the measures retailers use to assess their financial performance.

Answer 1

financial performance metrics every retailer should measure are :

1.Total Sales :

The total sales metric, otherwise known as gross sales, is arguably the most important metric for retailers.It also enables retailers to project future sales — something which is especially important to small retailers, who often look to secure investment in the early stages of their business venture. When trying to secure an investment, small retailers need to show their sales performance so investors can see whether the offering being sold is market viable and whether the sales trends are increasing or declining.

2.Gross margin:

Unlike total sales which only shows you your revenue stream from the products you sell, gross margin measures the profitability of your inventory.To calculate your gross margin, you need to subtract the total cost of goods from sales generated and then divide this number by your total sales to get the gross margin percentage.

Product price when sold = Product acquiring or making price + Gross margin

3.Net margin:

Many retailers start a business to turn their passion into profit. Many of our customers are examples of real-life success stories who have managed to achieve this.Net margin (also called profit margin), indicates the overall profitability of your business.

4. Number of Customers (Customer Traffic):

A number of customers are the most straightforward metric for your retail business.Customers are the sole source of money for your retail business.If you’re in e-commerce, measuring customer numbers is pretty easy.

5.Effectivity (Retail Conversion Rate):

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.

Customer conversion ratio = No of transactions / Customer traffic x 100

6.Average Sale (Average purchase value):

Going more in depth, you’ll be interested in your average sale value. 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.

Average sales order value = Total sales value / Number of transactions