Location Analytics

Four formulae to incorporate into your retail analytics efforts

Written by Brett Stephenson
Sep 8

The depth and breadth of your retail analytics is wholly dependent on you. As the saying goes, ‘What you put in, you get out.’ The retail analytics formulae and tools you choose to implement depend on a variety of factors, including the type and size of your operation, your specific goals and pain points, and of course, your budget.

Regardless of these, the end goal of all retail analytics efforts is to gain insight into your operations and then optimise your processes accordingly. If your current retail analytics methods are still leaving you in the dark, fear not. We’ve rounded up five formulae that you can incorporate to bolster your current methodologies.

Operating Expenses Ratio

The Operating Expenses Ratio (OER) is a basic, yet crucial equation. This is calculated by dividing your business operating expenses by your total revenue. As Investing Answers mentions, this equation is most frequently used in the real estate sector, but can be applied to any retail outfit too. Factoring your OER into your retail analytics efforts gives you crucial insight into the costs of running your business on a day-to-day basis, making this formula essential if you want to ensure your cash flow is healthy, and that you’re actually achieving ROI at the end of the day. Investing Answers also notes that your OER gives you an indication as to the “managerial flexibility and competency” of your company - if your operating expenses are almost equal to the revenue generated, there’s a problem – which might be due to inept operational management.

Safety stock levels

“Safety stock is like a small emergency warchest you can break out when the going gets tough and it looks like you’re on the verge of selling out”, says this article from Trade Gecko. Think of safety stock as you would an extra bottle of water on a hike: you may very well not need it, but should you wander off the beaten track, that extra two litres of water could be the difference between dehydration and finding your way back home. It’s crucial to take an emergency supply of H2O with you, but you need to make sure that you have space in your backpack and that the extra weight won’t slow you down. Calculating your level of safety stock is much the same – too little and you run the risk of losing out on sales and new business, too much and you run the risk of losing money due to stock lingering on the shelf. The good news is, finding the balance is as simple as following this formula:

Safety stock = (Maximum daily usage X maximum lead time in days) - (average daily usage X average lead time in days)

It’s important to note that seasonal demand and market trends will influence your safety stock levels. Calculating your safety stock should therefore be scheduled regularly.

Sales per square foot

Once touted as the primary measure of whether or not your retail store is flourishing or flailing, sales per square foot remains an important aspect of retail analytics, but only when viewed in conjunction with various other key metrics. This number is a vital indicator as to whether or not you need to optimise operations or tweak your sales strategy. For example, if you’re renting a large space for a premium, yet your sales per square foot don’t justify the space, you’ll need to consider a smaller space in order to boost your profits.

Determining your sales per square foot is relatively simple: divide your total net sales by the number of square feet of your retail space and voila, you’ve got your number.

Average number of visitors

Without customers, your business wouldn't exist. It's your job to make sure that your store is constantly attracting enough new shoppers, as well as welcoming repeat visitors to result in a profit. Determining how many people are actually walking through the door sheds light on a number of aspects of your retail operations, including the efficacy of your marketing strategy, the location of your store, and the way you differentiate your offering from local competitors.

The good news is, you don’t have to revert to the tedious and time-consuming task of having a staff member stand at the entrance doing manual headcounts. Today’s foot traffic software is simple to implement, easy to use and able to deliver accurate data – in real time, too. Blix Traffic is a crucial addition to your retail analytics, giving you insight into not only the number of feet through the door, but also the way shoppers navigate your store, the times when foot traffic peaks, and the times it’s less than optimal.

Find out more about Blix Traffic – the smart way to go about retail analytics.

Learn more about Blix Traffic for retail

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