Traffic and conversion: Key performance indicators for retailers
When it comes to sales metrics, many brick-and-mortar retailers measure success through various formulas such as total dollar sales, average dollar transaction, units per transaction and so on. While these performance indicators are important, often, one of the most overlooked measurements in retail, traffic and conversion, is vital to understanding the overall success of your business. Here’s why:
Traffic is the number of people that enter your store; regardless of whether or not they make a purchase. Each person represents an opportunity to turn a sales prospect into a buying customer. By dividing the number of transactions by the number of people that entered your store, you can determine the percentage of people that made a purchase. For example, if 100 customers enter your store in a given day resulting in 60 transactions, then your conversion rate is 60 percent. Of course, there are a number of factors that go into determining an acceptable conversion rate (e.g., apparel and jewelry retailers likely have different conversion rates), but that is beyond the scope of this article. Let’s consider the direct impact of having traffic counts and conversion rates at your fingertips.
By analyzing traffic, you can decide how many associates are required to meet the needs of your customers. Traffic counts reveal which days, or even which hours within a day, are peak hours and will require the most attention. Knowing your peak hours allows you to schedule your best associates during the most important times. It also ensures you are properly staffed to handle the amount of traffic that is projected to enter your store, which improves the customer experience, helps reduce shrink and maximizes sales potential.
Furthermore, consider this example: In reviewing sales figures, traffic and conversion, you notice a top-performing store’s conversion rate has dropped from 50 percent to 20 percent over the past three months, but traffic has been consistent and sales are only slightly down. You decide to bring in a couple of solid sales associates to augment the current staff and notice the conversion rates begin to climb again over the next month, pushing sales revenue up as well. If you focus on revenue without considering traffic and conversion, you may not know the effectiveness, or lack thereof, of your staff and, more importantly, the sales opportunities you could be missing.
Traffic can also assist in measuring the success of a particular marketing campaign. Say you’ve sent out 10,000 direct mailers to past customers in an effort to increase sales for the month of July. After analyzing July’s sales against the previous year, you find sales revenue to be surprisingly flat. You could assume that the marketing campaign was a failure, but how do you know without also comparing traffic for the same month? You may find that traffic was 20 percent higher than last year, which could be indicative of having the wrong products, merchandising or staff, not the wrong marketing campaign.
The list of benefits goes on, but consider this: whether you decide on a sophisticated, electronic counting device or a manual, handheld tally counter to start tracking your traffic, the point is the same. Recording traffic can help make sound operational decisions, provide insight into sales and marketing trends, and calculate the most important success factor in retail—conversion. Conversion exposes the entire sales picture; it includes the sales you didn’t earn, and that is a powerful measurement in ensuring your retail business is reaching its maximum potential.