What is the most important analysis you can run on your Retail Business Performance?
Most retailers will be tracking revenue (and changes vs backdata), but few identify why their revenue changed (especially if revenue has grown).
If you do not seek to understand why your revenue has changed and quantify the impact, then you might miss an important trend that could be having a significant impact on your business.
There are only three possible factors which can change your revenue
- Changes in the number of transactions
- Changes in the number / quantity of items in a basket
- Changes to the item price of lines in the baskets
Quantifying the effect each of these has had on your revenue is very useful in deciding where to focus your time and where you might get the best return.
Consider the two retailers below:
This retailer is in growth in all three metrics. The top-line 10% growth they have seen is good for any business, however the largest driver of the growth seen was through price increases. And in fact the effect of any increase in transactions was negligable – a static number of transactions is not healthy for any business. Without looking at the revenue change metrics in isolation, how would they have known?
Retailer #2 is in a worse position, not only are transactions down, but so is basket quantity and item spend. Which area do you tackle first?
The one causing the biggest impact of course (transaction volumes in this case) – but how would you know which it was from total revenue figures?
These are extreme examples and in reality there will be some metrics up and some down for most retailers. There will of course be reasons why the metrics change too, but unless you know what metrics are driving the biggest (positive and negative) changes in your revenue , then you can’t investigate further or take corrective action – you’re simply making assumptions – and assumptions do not always lead to good business decisions. This is why this simple analysis is so important for all retailers.
This type of analysis is also just as valid at department, subdepartment or product level, so is very useful in diagnosing potential business issues and so comes as standard to our clients in our reports.
The data that drives this report is easily extractable from your EPOS system, but so few retailers seek it out. We are passionate about delivering insight, so we are happy to talk to any FRA members to help them to understand these important metrics and how to get them out of their data sets – feel free to e-mail Duncan@datastrategyconsulting.co.uk to arrange a phone call or completely free site visit to show you how.
Data Strategy Consulting have worked with a number of FRA members since we joined the association in 2015.
We help our clients, by providing them with insights, drawn from the data in their EPOS systems, that signpost how their customers are behaving and how that behaviour is changing over time.