As with so many things in life, the answer to every problemis closer at hand than you think. As retailers feel the pain of an economicslowdown and flagging consumer confidence, they tend to look outside theirbusiness for remedies and strategies. However, they would do better to lookinside the business, measuring its performance and planning its future usingintelligence that is readily available.
Effective business management relies on good information. Itgoes without saying that retailers need to monitor their exposure to risk,their cash flow and their profitability. However, the most valuable informationoften does not sit in the P & L accounts; it derives from measuringcritical indicators. These indicators are as individual to the business as itsDNA.
Too many managers monitor financial performance and expectto be able to make changes based upon what they find. Invariably, they areshutting the door after the horse has bolted. Financial data records the resultof strategies and tactics, but leaves little room for manoeuvre after theevent.
A more reliable approach is to define simple indicators thatproactively take the temperature of a business. For an online retailer,indicators could be based upon visitor traffic by time of day and duration,highlighting the pages visited and the products that provoke enquiries andgenerate sales. A stores-based retailer could measure footfall, by location, bytime of day and by length of visit.
In our business, selling e-commerce and EPoS solutions toretailers of all sizes, you could argue that 'sales made' is a key performanceindicator. Whilst this is clearly of critical importance, I look elsewhere formy business intelligence.
A plasma display in my office shows me in real time how ourtelemarketing consultants are performing: the number of calls each makes, thetotal time being spent on the 'phone each day, the number of appointments madeand, from another set of KPIs, the demonstrations that result from those calls.Throughout the day, I watch this data coming across the screen and am in timeto spot trends, ask questions, sound alarm bells and make changes. Waiting forsales results at the end of the month could just be too late.
Every business is affected by scores of internal andexternal factors that enhance or diminish its performance. The sheer volume ofinformation available can be distracting so it's important to focus on just afew key indicators which reflect performance, are measurable, are comparableagainst benchmarks such as a previous year's data or a competitor's results,and which indicate a course of action.
So how do you identify your KPIs? Whilst best practicesuggests that you ask yourself three questions: what drives your sales figures,your costs and your cash-flow, you should always come back to what drives yourown business. Whilst there are retail constants such as sales per square footof store space, accept that drivers can vary enormously even within the samesector, and that they will need to change with time.
Analyse what would enable you to outperform your competitorsand consider having these elements as KPIs. Understand the costs of each stepin your supply chain. Investigate the effect that training and staff turnoverhave on your sales, and measure productivity by sales person against experienceand length of service. Good stock management means having the right stockavailable at the right time in the right location. It also enables you torelease cash by 'turning' stock. Set KPIs around product defect/return ratiosand calculate how returns are eroding your bottom line.
When it comes to presenting KPIs, make sure that your chosenmethod highlights trends. You can do this by simple means as I do with mytelemarketing activity screen, or you can invest in business intelligencesoftware. These systems are particularly good at crunching data and providing 'trafficlight' performance displays and exception alerts.
At the end of the day, if you have defined your most critical drivers and their basis of measurement, the intelligence that you need should be readily available.
Remember that measuring sales performance will not help you to make sales. Understanding and acting upon the key indicators of your business is the best route to success. Only KPIs will enable you to judge whether your business is in poor or good health, and will direct you to apply the appropriate treatment.
About the Author:
Ian Tomlinson is the Managing Director of EPoS and e-commerce solution provider Cybertill.
Please visit: www.cybertill.co.uk
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