Behind every facet of your business are constantly shifting numbers that offer insight and opportunity for running a more goal-focused, successful operation.
It’s not enough to identify these key retail metrics once. High-performance retailers are tracking these figures consistently, observing how small changes in one area can create ripple effects of opportunity in others.
Discover how Brett Thorne, operations officer for Thorne Lumber in Missouri, has unlocked the power of tracking key retail metrics over time. Also, read how Peggy Sue Wingard, co-owner of O-Gee Paint’s two locations in Miami, uses the annual Cost of Doing Business Study to compare her business’s core figures to other paint and decorating retailers. In addition, Jim Robisch, senior strategic adviser of The Farnsworth Group, explains how a sharp focus on conversion rates, occupancy costs, employee productivity and marketing can bring your business new opportunities.
“The advantage of evaluating metrics is found by evaluating it more than once or twice,” says Robisch. “The value is finding a trendline that you can follow. It’s by observing change in any metric that helps you diagnose problems in your business and find ways to correct them.”
A Constant Focus
Like other home improvement retailers, Brett Thorne saw sales at his business rise throughout 2020, bolstered not only by the surge in DIY activity prompted by the pandemic, but also Thorne’s sharp eye on the key retail metrics powering his business.
For more than 30 years, Thorne Lumber has served as a locally owned solution for hardware and building materials in northwestern Missouri. The business caters predominantly to professional customers purchasing materials, but also does a sizable business with DIYers. That mix of customers keeps every team member agile.
As operations officer for the family business, Thorne regularly evaluates core figures in his business, searching for small ways to uncover enormous advantages for the company.
“It’s one thing to look at your numbers—and that’s great, you have to know where you are—but if you don’t have anything to measure those facts against, are you really doing yourself justice? You may be getting better, but still be falling behind the curve,” he says.
One tool Thorne credits with helping him track success and opportunities for his business is the North American Hardware and Paint Association’s annual Cost of Doing Business Study.
Each year, Thorne submits his financial information to NHPA during the data collection period for the study. His information remains entirely confidential, and in return, NHPA provides him with a personalized report of not only his business’s key metrics, but also aggregate information on the independent home improvement marketplace as a whole.
Thorne says it’s important to track how his business performs beyond sales. He reviews each installment of NHPA’s study and shares important findings with his managers, helping them learn more about Thorne Lumber and ways they can work together to reach new milestones.
“With a resource like the Cost of Doing Business Study, you can see how you’re doing compared to the industry,” he says. “Where do I need to improve? How can I make this figure rise while stabilizing another? Tracking your metrics without something like the Cost of Doing Business Study is like having a map without a compass—no true sense of direction.”
Conversion rate represents one of the quickest ways to evaluate how your business is performing. Choose a set period of time to evaluate this metric. Identify the total transactions in that period, then divide that figure by the total number of customers you served. That result is your business’s overall conversion rate, a transparent look into how well your business is engaging customers and making sales.
Robisch says conversion rate is a leading metric retailers should review regularly. He recommends taking a nuanced look at this simple metric by evaluating it in two ways.
First, identifying the absolute conversion rate, or the rate at which your store offered customers ‘the destination item,’ the single product that brought them through the doors, is valuable.
“That’s where a strong inventory comes into play,” Robisch says. “You have to be in stock to meet that initial demand a customer has for a product.”
Each conversion at your store comes with an opportunity to boost transaction size. Once your salespeople make a conversion, or a customer is at least strongly considering a purchase, try to upscale the item. Earnest recommendations about the quality or durability of slightly higher priced products can convince customers of your staff’s product knowledge, but also strengthen your bottom line sale by sale.
Secondly, Robisch recommends retailers look for a Plan B if a customer doesn’t purchase their destination item. Strong merchandising and savvy salespeople can help a customer purchase impulse or add-on items they didn’t initially plan on buying. While these sales may not offset a destination item, your team will still manage to salvage a sale and simultaneously boost this key retail metric.
Robisch says one pitfall of conversion rate is the potential to see it lowered by making strides with your marketing. As more people visit your store, your team will have to also boost conversion rate or risk seeing the figure slide. If you notice this imbalance, it could be wise to invest in greater sales training for your team.
Understanding the factors influencing total occupancy costs helps you know where you could save money in other areas.
Thorne says occupancy costs, particularly the rent he pays, are a high-level metric, but he does share the figures with his managers.
“Occupancy costs change market by market,” Thorne says. “One business owner can have multiple locations and see vastly different occupancy costs store by store.”
To combat this discrepancy, Thorne says he takes a historical view of his occupancy costs and views it as a percentage of his total expense. Even though occupancy costs may fluctuate year to year or location by location, observing the percentage change can help you set a guiding standard for your operation.
Robisch says it’s important to view the figure alongside other expenditures. If a retailer invests heavily in securing a new, highly visible space, the cost of rent or a mortgage may impede them from staying flexible in other areas. Conversely, paying too little for a location in a less desirable area may appear more affordable, but a retailer may have to increase spending in advertising and security to get customers through the doors.
“Good locations can help you in many ways,” Robisch says. “Having a good location means you don’t have to do a lot of awareness communication; you can focus primarily on strengthening your brand.”
Robisch says this metric could rise occasionally with unexpected repairs or equipment replacements.
If retailers feel their occupancy costs are too high, investigating ways to reduce energy and utilities could be a solution. Talk to your utilities providers about opportunities for cost savings, like budget billing, find out if your wholesaler offers an LED lighting conversion program or consider alternative energy sources, such as solar power. Additionally, exploring low-cost advertising outlets could offset premium occupancy costs.
Thorne regularly evaluates sales per employee, gross margin per employee and gross margin per transaction to track overall staff productivity at his stores. However, he sees each metric as closely affiliated with other business rubrics, including total payroll, employee expenses and overall employee count.
He also uses the employee productivity results to establish and measure compensation.
“Earnings by performance is going to become increasingly important in the coming years,” Thorne says. “Home improvement is going to be seen not only as an essential business, but also an exciting one. We’re going to have to determine whether we’re paying workers appropriately and making home improvement a desirable industry for the long term.”
When sales per employee fall too low, it’s a clue to Thorne that he may be overstaffing his business. While high sales per employee can feel like a win, those figures may reveal your current staff is taking on too much and there is potential to hire additional workers for improved operational efficiency.
For Robisch, insights into employee productivity reinforce staffing decisions.
“The biggest issue with tracking employee productivity is to allocate sufficient staff to support your brand message and service objectives at particular hours of the day,” he says. “This metric lets you see if you’re overstaffed or understaffed at any particular point.”
The Cost of Doing Business Study will help you pinpoint how independent hardware stores, lumberyards, home improvement centers and paint locations are doing in relation to employee productivity, helping you find a midpoint to determine your own performance.
Marketing & Loyalty Program Engagement
Thorne says his business caters predominantly to pro customers, so his focus may not be as sharply aligned to retail loyalty programs as other retailers. Still, he serves a sizable DIY base and his locations feature product showrooms, which prompt him to consider marketing as a key retail metric.
“We do regularly review our advertising and marketing dollars,” Thorne says. “What kind of investment are we making on that end? Are we seeing true results?”
Investing in marketing or establishing a loyalty program can yield big results for your business. By advertising your brand, your inventory and your location, you can immediately draw more customers. Those actions can boost sales and help you solidify your brand. But beyond those benefits, strategic marketing and loyalty programs offer retailers valuable insight into exactly who their customers are and what home improvement products they need.
“The data from marketing and loyalty programs is the most valuable part,” Thorne says. “Seeing data of what your customers are buying is so important. By studying that data, you can gain repeat business. Targeting your future promotions based on that data can be an immediate strategic win.”
Robisch says data can offer concrete guidance on how to run your business.
“If you don’t have a loyalty program, you should,” says Robisch. “It’s an absolute necessity as the last year has shown us. We need to have direct customer information to communicate with them instantly, know what they need and take care of them as best we can.”
Robisch says some of these programs can serve as a way to maintain positive brand awareness, introduce special sales and simply remind customers you’re open for business.
“Loyalty programs can be the single differentiator, the deciding factor of where someone shops,” he says.
Insight & Opportunity
For Peggy Sue Wingard, co-owner of O-Gee Paint in Miami, the best part of being an independent paint and decorating retailer is facing—and overcoming—new challenges each day.
“You never know which challenges you’ll face day to day,” she says. “As an independent, you get to make your own destiny.”
O-Gee Paint has been in business for more than 70 years, and in 1981, Peggy Sue’s mother, Peggy Schultz, bought the enterprise. She knew the business had to stay on top of new technology and maintain a sharp focus on its key retail metrics; she was the first retailer south of Atlanta to add a computerized color-matching system in her operation and pioneered a specialized digital POS system for the company soon after.
Peggy Sue says she’s more a people person than a number person, but as her mother transitioned away from day-to-day operations, Peggy Sue knew regularly tracking key retail metrics was not only important, but would help prepare the business for a new generation of success.
As she tracks core figures that define O-Gee Paint, Peggy Sue uses the annual Cost of Doing Business Study produced by the North American Hardware and Paint Association to monitor her metrics and see how she compares to her industry peers.
“One of the cons of being an independent is that you don’t know how your business metrics compare within the industry,” she says. “To me, it’s really important to learn from other retailers who you have a connection with, and the Cost of Doing Business Study helps me do that.”
She says contributing to the study is simple: she uploads her financial records confidentially to YourNHPA.org/codb. In return, she receives a free, personalized copy of the latest Cost of Doing Business Study, detailing key retail metric results for typical and high-profit hardware stores, home centers, lumberyards and paint and decorating outlets. She also receives a personalized financial analysis, showing exactly how her store’s performance compares to other paint and decorating operations.
Peggy Sue says reviewing metrics with the help of the study helps her establish a baseline for her business and see which metrics rose and fell from one year to the next. In addition, she can compare her specific operating results to other typical and high-profit paint and decorating centers, allowing her to find out how she compares to her independent peers.
“There are always questions when you run a business: Are my operating expenses in line? Am I spending too much on payroll? The Cost of Doing Business Study helps me answer those questions.” she says.
No matter how large their operation, Peggy Sue says retailers across the U.S. can benefit by participating in the Cost of Doing Business Study.
“I tell people they’ve got to do this,” she says. “Whether you have one store or 80 stores, the study helps you visualize your business and find new ways to grow.”
Peggy Sue encourages all retailers, especially independent paint and decorating retailers, to take part in the study.
“The more people who participate, the better the data and the more significant the performance indicators,” she says. “We all can see where we’re doing well and where we could improve.”