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Five Metrics You Need to Know

The numbers can be overwhelming at times, but it’s important to keep an eye on them to help measure the financial health of your business. Below are five metrics you should know and use to better understand your operation.

Average Sales Per Customer

Sales per Customer = Sales ÷ Customer Count
Average Sales per Customer is a good determinant of the customer base and the productivity of staff; the more dollars that can be added to a customer’s cart, the more profitable your store will be.

Inventory Turnover

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
Inventory Turnover identifies how efficiently a company controls its merchandise liquidity or how often inventory is “turned” during the course of a year. If Inventory Turnover equals 5, then inventory was turned 5 times throughout the year, or there were about 73 days of sales on inventory (365/5).

Profit Margin

Profit Margin = Net Income ÷ Revenues
Profit Margin shows the percent of sales a company keeps as profit, or the percent of profit generated from each dollar of sales. Generating additional sales or cutting expenses can increase Profit Margin.

GMROI

Gross Margin Return on Investment (GMROI) = Gross Margin (% or $) ÷ Average Inventory Cost
This ratio shows how much profit is earned for every dollar in on-hand inventory. A ratio above 1 indicates the company is selling inventory above its cost and a ratio below 1 indicates the company is selling it for less than it costs to acquire the inventory.

Percent of Sales Dedicated to Training

Percent of Sales Dedicated to Training = Costs of Training ÷ Revenues
Percent of Sales Dedicated to Training illustrates how valuable a company finds training to be. This number can then be compared to other stores’ budgets for training and how much variance there is between employee productivity ratios.

Want more data? Participate in the North American Retail Hardware Association’s (NRHA) annual Cost of Doing Business Study. Participation is easy and in return, you receive a robust Personalized Financial Analysis. This resource is catered to your store and helps you make smart and strategic business decisions.

About Liz Lichtenberger

Liz Lichtenberger
Liz is the special projects editor for Hardware Retailing magazine. She reports on news and trends, visits retailers, and attends industry events. She graduated from Xavier University, where she earned a degree in English and Spanish and was a member of the swim team. Liz is a Louisville, Kentucky, native who lives in Indianapolis with her husband and two children. She enjoys swimming, reading, doing home improvement projects around her house and cheering on her two favorite basketball teams, the Kentucky Wildcats and the Xavier Musketeers.

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