What affects your profits directly are the performance of your sales. Also, when you measure the performance of every piece that you sell in your collection, you can see what works and what doesn’t, so that you can make smarter decisions that are more calculated in detail moving forward.
In this blog, I’ll share with you 6 different sales & product performance metrics that can help your business know whether your sales are on the right path or not.
SALES PERFORMANCE METRICS
1. SALES – We refer to these as TURNOVER or REVENUE. They are used to measure your total income for a certain period of time. What are recorded commonly are Daily, Weekly, Monthly and/or Yearly sales.
2. VALUE PER TRANSACTION (VPT) – This is computed from the total sale value over the number of transactions made. This is a very effective type of measurement for sales. This is how much a customer spends for each oder/purchase. The average sale will give you an idea of the sales per order and not the sales per customer, because the same customer could initiate multiple transactions.
3. NUMBER OF CUSTOMERS – The more customers you have means that you have more transactions made. For retail stores, don’t mix up number of visitors and the number of customers. Store visitors whether online or physical are only customers when they BUY.
4. UNIT PER TRANSACTION – This is computed with the sold quantity over the number of transactions made. Usually when your average sale goes up, the item count will go up too. It would be better if the item count rises slower than the average sale instead. You want more money, and not just to sell more items at the end of the day, right?
5. INVENTORY TURNOVER – This is computed with your cost of sales over your ending inventory value. This is a ratio of the amount of inventory sold over a certain period of time. I would prefer higher inventory turnover ratio because it indicates that more sales are being generated given a certain amount of inventory. But, having a very high inventory ratio could result in lost sales too, because there is not enough inventory to meet your demand. The cost of sales is the total selling price of the items that you have on hand.
6. AVERAGE DAYS TO SELL INVENTORY – This is computed by dividing 365 to your inventory turnover. The average days you consume to sell all your inventory on hand. Usually for luxury businesses, it takes more days to sell compared to a mass market retail brand.
PRODUCT PERFORMANCE METRICS
1. SOLD QUANTITY – How many of the specific products have been sold by measuring it Daily, Weekly, Monthly or Yearly.
2. SELLING SPEED – This is computed by the sold quantity over the selling days. This is how fast your product is being sold to your market. A product is not a BESTSELLER if it takes a long time to sell from the store.
3. SELL-THROUGH RATE – This is computed with the sold quantity over the quantity intake. The quantity of a product a retailer receives from a manufacturer or supplier comapred to what is being sold to customers.
4. RETURN RATE – The number of return over the sold quantity multiplied by 100. To measure a product’s performance, you’ll need to take the return rate into account also. You could sell a product in hig quantities but if you get a lot of returns for the item being sold, then it’s not actual profit, but a loss. Check the quality of the product, because most likely it has a flaw or manufacturing defect.
5. RETURN ON INVESTMENT (ROI) – This represents the financial benefit received from an investment. The goal here is to have the highest ROI, which indicates your investment that leads to gains. It is used to compare the profitability of different products. Compute it by subtracting the cost of good from your selling price over the cost of good then multiplied by 100.
6. GROSS MARGIN – This is computed by subtracting the cost of good from your selling price over the selling price then multiplied by 100. The gross margin indicated the earning ability of your items. The higher the percentages, the more the company can retain on each peso of sales made. If the value is low, consider raising the selling price or lowering your cost of goods. The selling price will be the wholesale price and the retail price when you measure the wholesale and retail performance of each.
These are all key sales and product performance measurements you need to learn so you can be analytic of your entire sales, not just your bottom line numbers. By doing so, you have a much better understanding of how your collections/products are doing, rather than just knowing how much you have and how much you have sold.
Question of the day: Which one of these do you use now to measure sales and product performance?