Ratios you can’t afford not to track
by My Retail Coach, Danielle Lavallee Wasson and Nathalie Blanchard
Spa retailers face ongoing challenges that are unique to this industry: finding and keeping qualified personnel, turning over high-value inventory, getting customers, keeping customers, making money and many more.
What is your starting point and where do you want to end up? Knowing and keeping track of key performance indicators (KPI) monthly is critical to hitting your goals. By now, you have last year’s financials you can use to set your starting point. We will focus on four categories: company performance, product performance, staff performance and marketing performance.
Company Performance Ratios indicate the health of your company.
Current Ratio = current assets / current liabilities
Quick Ratio = (total current assets – total current inventory) / total current liabilities
Inventory Turnover = net sales / average inventory balance
Gross Profit Margin = (total sales – COGS) / sales
The current ratio checks solvency, or your ability to pay your debt. The quick ratio shows if you can meet financial obligations, even if something unexpected happens. The higher the better. If it starts to slip, it might be an indication that you can no longer pay your debts. Inventory turnover measures how often your inventory is sold and then replaced during a given time frame; higher is better. Your GPM measures profit made based on the cost of goods sold.
Product Performance Ratios help maximize product profitability.
Operating Costs Per Sq. Ft. = all overhead costs / square footage
Product Profits Per Sq. Ft. = (product revenue – product COGS) / square footage
We measure these to determine if the location of certain products or product categories influences sales. For example, if placing your highest priced spa in front of the store increases that spa’s sales and turnover, leave it there. If it drops, consider moving it. The operating costs will help you make better buying decisions based on data — how much it will cost you to have it sit on the floor — instead of impulse.
Staff Performance Ratios determine sales performance.
Company Closing Ratio = total # of people / # of sales
Individual Closing Ratio = # of leads / # of sales
Most salespeople don’t want to measure this, but great sales people always measure this. A slip in closing ratio is a quick way to see if traffic is down or if your staff is falling behind on follow up and asking for the sale.
Tip: Install a door traffic counter to get the total number of people who come through the door.
Marketing Performance Ratios help maximize your marketing and advertising budget.
Customer Acquisition Cost (CAC) = total cost of sales and marketing / number of new customers
Average Sale = total revenue / total number of sales
Website Visits: Use Google Analytics to track website activity or ask and keep track of how a new customer heard of you.
If your customer acquisition cost (CAC) continues to increase and your average sale continues to go down, adjust your strategy. If you go to a fair, your acquisition costs will be higher for that period. Keeping an eye on both ratios will help maximize the impact of your marketing. The traffic on your website is an early indicator of your customer pipeline. This varies greatly, so track it on a longer period; don’t worry about daily or weekly fluctuations.
Once you calculate your KPIs for last year, set some goals for this year and track them monthly. Use the information to adjust your strategy and activities before it is too late.
Keep this quote from Paul J. Meyer in mind: “There are many things that we measure that don’t really count, but there are also things that count that we cannot measure.” We can gauge employee and customer satisfaction with surveys or our gut feeling. But the public will gauge your customer satisfaction by looking at your reviews and testimonials.
The next article will help you create the ultimate customer shopping experience.
After a 26-year career in the pool and spa industry, Danielle Lavallee Wasson pursued her passion to help retailers grow their business, founding My Retail Coach. Wasson’s approach is straightforward and provides real-life solutions that dealers can use to effect positive changes with their teams. Nathalie joined My Retail Coach in 2017. She brings more than 20 years of experience in online marketing of small- and medium-size businesses. She helps dealers improve their online presence by providing highly effective activities.
Their mission is simple: Help dealers get more customers, keep them longer and make more money. My Retail Coach services include online training videos and webinars supported by one-on-one coaching and consulting. You can find courses at mycoach.thinkific.com.