What are KPIs and how do they benefit the retail and hospitality trades?

Key performance indicators (KPIs) relate to the important areas of performance of a business or individual and are usually measured over specific time periods. Some of the most common KPI indicators used in business include:

KPI business indexes

These are useful for comparing different time periods. Two examples of a KPI index could be a record of the number of sales leads that are converted to customers within a month or quarter, or an index detailing the production errors in a manufacturing environment

Financial indicators

Most commercial organisations maintain financial KPIs, which could include sales figures, turnover and purchase ledger expenditure.

Return on investment (ROI)

ROI is a common marketing measurement to summarise the difference between net profits and total investment made. A product showing high ROI would be making good profits for its producer company.

Customer retention

Customer retention relates to customer loyalty and maintaining active customers who return to make repeat purchases. This is a particularly important KPI for retail businesses.

Call measurement

Even businesses that don’t operate their own call centre find that maintaining a KPI index relating to call length times and waiting times helps them achieve better rates of customer satisfaction.

 

These are just a few examples of KPIs and some organisations utilise many more measurements than this. Many KPIs are specific to their own sector and examples of KPIs that benefit the retail and hospitality sectors are discussed below.

 

Benefits of using KPIs in the retail and hospitality sectors

Measuring KPIs in retail can help increase the profitability of the business. Some important KPIs that can ensure greater success within retail include:

– Monitoring footfall is simply a count of the number of people entering the store and is a key KPI for retailers of any size. Keeping a count of the number of people visiting the store allows far greater customer insight and shows which days or times of the week are most busy, which allows you to manage staffing rotas far more efficiently. An ideal add-on to footfall measurement is a weather monitor, to give an indication of the effects weather has on your business.

– Numbers of sales KPI is another vital measurement which helps when forecasting growth targets and is also used for calculating conversion rates and average spend figures.

– Conversion rate KPIs are easy to put in place when you know the footfall and number of sales measurements, making it simple to work out the percentage of visitors that became paying customers.

– Average spend KPIs is another critical measurement which can be easily extrapolated from the number of sales made and the total value of these sales.

– Sales per square foot KPIs are essential for retailers when space is at a premium. It’s just a case of dividing total sales values by the square footage of the retail unit by day, week, month, etc.

– Keeping a handle on profit margins is another important KPI for retailers and is measured by taking away the cost of the sale from the sale price. When you appreciate the margins you achieve for every single line of stock you can work on improving these by buying in bulk or switching supplier.

– Measuring product returns is another critical KPI to track and impacts on overall profits if it is at high levels. Knowing your KPI for product returns helps you identify ways in which this number can be reduced.

It’s slightly different in the hospitality sector as the product offered is more likely to be measured by way of customer satisfaction levels. When it comes to KPIs for hotels and accommodation, it’s important to measure average room rates, bedroom occupancy rates, revenues achieved per room and the total cost of maintaining each room.

Restaurants and businesses operating in the food sector should be measuring the cost of sales, gross profit margins, average customer spend and the ratio of labour costs to sales. Within the beverage sector, important KPIs include average spend per customer and all other measurements noted for businesses operating in the food sector.

Virgate Accounts provide outsourced financial support to businesses operating in the retail and hospitality sectors in the UK. Contact us to discuss ways in which we can help your business maintain and grow profit levels.