David Brown: Start Measuring Your Key Performance Indicators Today
Secret is to focus on your profit drivers.
BY DAVID BROWN
Published in the February 2012 issue
There’s an adage in business: “You can’t manage what you can’t measure.” Like all good time-tested sayings, there is a very wise element of truth to it. For years I’ve advocated to jewelers the importance of getting feedback and using that information to make changes in their activities. One of the most important areas of feedback is what we refer to as the four key performance indicators. This article will cover two of these indicators — average sale and the quantity of items sold. Together these two factors combine to make total sales as shown below:
Average Retail x Quantity Sold = TOTAL SALES
It stands to reason then, that the only way to boost sales is to increase one of these two variables. Let’s illustrate: Helen’s store achieves an average retail sale price of $100
It stands to reason then, that the only way to boost sales is to increase one of these two variables. Let’s illustrate: Helen’s store achieves an average retail sale price of $100 and sells 1,000 items per year. This gives her total sales of $100,000 ($100 x 1,000).
If Helen wished to increase her sales she has two options:
Increasing her average sale by 10 percent (from $100 to $110) would result in an increase in total sales to $110,000 ($110 x 1,000), assuming no noticeable fall in quantity as a result.
Her second option is to increase her volume of sales — let’s say by 10 percent again, giving her 1,100 units sold per year (1,000 + 10% = 1,100 units). This would mean sales of (1,100 x $100) or $110,000. Or better still Helen could manage a combination of both. What would happen if she increased her average sale by 5 percent from $100 to $105 and her quantity sold by 5 percent to 1,050 units (1,000 + 5 percent)? Let’s see: 1,050 units X $105 = $110,250.
Interestingly a 5 percent increase in both areas is better than a 10 percent increase in just one (only by $250) but if we looked at larger percentages this impact would magnify. If I asked you to increase you’re quantity of sales by 20 percent, you might laugh. But if I suggested you increase your quantity of sales by 10 percent and your average sale by 10 percent, then suddenly it doesn’t appear as daunting — and the rewards are better than a straight 20 percent increase in just one area
By focusing on both areas you are giving yourself a much greater opportunity to find a strategy that will make a difference. But before you can do any of this you must first know where you are already — and that comes back to measuring.
So take the time today to determine where your business is now — then it’s time to decide what strategy (or combination) you want to use. Once you have put the strategy in place, you then have the ability to measure the results by checking your monthly reports to see if the average retail or quantity is improving, and to take action to change your strategy based on the results.
So how do you measure up?
Next month: Markup and stock turn.
About the Author: David Brown is President of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports contact Carol Druan at carol@edgeretailacademy.com or Phone toll free (877) 5698657 Edge Retail Academy, 1983 Oliver Springs Street Henderson NV 89052-8502, USA
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