What benchmarks should you be using in retail?
It’s always important to measure how your business is tracking. Profit and loss statements, cash flows and ROI are all common tools that are used to measure business performance.
However, seldom do they measure how your business performed against its competitors or the market in general. There are other numbers that are equally important when it comes to setting a strategy for a business. Benchmarks of key performance metrics are very useful in setting strategy and developing strategic thinking.
So what are benchmarks? They are reliable information about standard performance in an industry or category, and when set against your business, they provide guidance as to where your business stands, better or worse than the industry. And more importantly, your competitors.
National and category benchmarks are potentially powerful tools to understand how your business is performing against competitors. Do you know the latest key benchmarks for your business?
The benchmarks retail businesses should know and use include: sales per square metre, customer average spend, gross margin percentage achieved, occupancy cost percentage to sales, wage cost percentage to sales, annual stock turn and forward weeks cover and total cost of doing business as a percentage to sales.
Once these benchmarks are known for your category, it’s a simple matter to measure your business’s effectiveness in the important aspects of retail.
The benefits of benchmarking your business include:
- You gain an independent perspective about how well you’re performing compared to other companies and particular your competition.
- It allows you to identify performance gaps and identify areas for improvement. Remember action without vision is merely passing the time.
- They allow you to develop a standardised set of processes and metrics that are relevant to your business.
- It enables a mindset of continuous improvement – a fundamental mindset in today’s retail world.
- It allows you to set performance expectations and know how you are doing against them.
- It allows you to measure company performance and manage change in a timely manner.
Without knowing your benchmarks, you are on a journey where you don’t where you’re headed and you don’t know when you are there!
Many large companies use these measures regularly, however, SMEs are often not aware of the key benchmarks for their business, or where they are in relation to the industry.
Benchmarking is a measure of how good a retailer you are and how your business is shaping up against the competition and ultimately what your customers think of you. All vital information in setting meaningful strategy to improve and grow your business in 2019 and beyond.
First published in InsideRetail on 4 February 2019