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Profitable Times Newsletter

Benchmarking

A benchmark is a value against which results or plans can be compared. Many benchmarks are an integral part of business plans, financial planning, and staff recruitment and scheduling agendas. In general, benchmarks are used to help measure where you are, where you're planning to go and how to get there.

Benchmarks can be objective and/or subjective goals you establish for your store or are established by others within your organization. Benchmarks can also be past store results or independently produced values such as from the MSA Retail Industry Survey. Other, perhaps less valuable, benchmarks can be results shared by associates in similar circumstances and commercial retail reports that reflect stores of similar size, location, product selection and other characteristics.

The most consistent benchmarks are those you calculate using known and verified data from your store and institution. As carefully as calculations using other sources of information may be collected and calculated, variables of many kinds and hidden factors often denigrate the accuracy of the comparisons. When in a consulting role, I sometimes incorporate the 'gut feels' of an experienced professional instead of treating benchmarks of unknown accuracy as 'gospel'.

In general, you are encouraged to collect as much data and make as many calculations as you will use, not as many as you can collect and calculate. Often there appears to be a more direct correlation between the capacity of a POS system to collect and calculate benchmarks than what is really useful or needed.

The following are a few of the calculations that reflect on the maximization of revenues, so let's briefly review the data to be collected, how the benchmarks are calculated and their potential value.

Visitation Count

A visitor count is part of the calculation of multiple benchmarks. Usually and most simply it's museum attendance. It's better, if possible however, to count the number of visitors who come in close proximity to the store when the store is open. For example, the attendance at an evening concert held in a field a mile from the store might not be included in the visitor count used for store benchmarks. We have a client that maintains twenty-three different counts each day. Some of our work with them was deciding which counts would consistently be used for store-related calculations. Regardless of the count used, this information must be kept or received in a consistent contemporaneous manner.

Average Sale

How much the customer spends on average per transaction.
Net Retail Sales ÷ Number of Transactions
$100,000 ÷ 3,500 = $28.57

Sale per Visitor

How much the visitor spends on average on retail purchases.
Net Retail Sales ÷ Visitor Count
$200,000 ÷ 60,000 = $3.33

Units per Transaction

Number of retail items sold, regardless of characteristics, per transaction. It's my experience that encouraging sales persons to increase the number of units sold, regardless of individual price, rather than trying to exceed a total net sales goal of a transaction being calculated in real time, is much simpler and an equally effective tool for increasing revenue.
Total Units Sold ÷ Number of Transactions
13,000 ÷ 4,000 = 3.25

Capture Rate

Percentage of visitors buying a retail item. This is a broad all-encompassing calculation that is probably more accurately reflective if museum visitation is used as the visitor count.
Number of Transactions ÷ Visitor Count (Not the number of people entering the store.)
4,000 ÷ 16,000 = 25%

Inventory Turnover

The number of times your inventory dollars are used per year. In the example below, each inventory dollar is used 2.4 times per year. More efficient use would result in a higher number, while less efficient use results in a lower number. Two quick additional points: First, Inventory Turnover can vary widely from product category to product category. Second, for a variety of reasons, overall museum store Inventory Turnover is very rarely as high as in commercial retail.
Cost of Goods Sold ÷ Average inventory @ Cost
$180,000 ÷ $75,000 = 2.4

Transactions per Salesperson Hour

Can be an excellent tool for planning future sales staff coverage.
Number of Transactions ÷ Staff hours spent in a sales persons role
5,500 ÷ 1,500 = 3.67

The 2018 MSA Forward Conference in Washington, DC in April will have at least three presentations that include references to benchmarking:

  • Friday, April 27, 7:30AM, Boot Camp
  • Sunday, April 29, 4:00PM, Advanced Financial Assessment: Using the MSA RIR to Advocate for Your Store
  • Monday, April 30, 10:30AM, Store Metrics & KPI's: Telling Your Story Through the Numbers

 
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