Are Sales a Valid Measure of Success?

The traditional measure of retail success is sales.

This should be viewed as the conversion of demand to ‘cash’ and is the ultimate measure of the chain of events that got the shopper into the store, convinced them to buy something and fulfilled their demand.

Sales are reported in variety of ways and with different meanings to different people.

They are reported inc tax, ex tax, net of discounts, including discounts, excluding returns etc. They are compared to plan, to forecast to last week, to last year and so on.

In my opinion, apart from the pure financial need, they are used as a measurement of success – but using sales as an isolated measure is fundamentally flawed.

Suppose that on a normal day you manage to generate £500 worth of sales. On the same day the following week, after extensive marketing and a drive on customer service, you manage to generate £750 worth of sales. You would probably congratulate yourself.

However with the benefit of shopper flow measurement and, for the purpose of this example, the assumption that each customer always spends £10, we could see that on a normal day you have 100 shoppers passing through the store. Of these 100 shoppers, you manage to convert 50 to customers. On the improved day, you doubled the shopper flow to 200 – but only manage convert 75. We can see that the conversion rate of shoppers to customers has decreased from 50% to 37.5%.

Besides the decreased conversion rate, there are some important considerations for measuring success:

  • Could the level of staffing in the store cope with increased shopper volume ?
  • Did customer service levels drop to below acceptable levels as a result ?
  • Did the supply chain put the right stock in the right place at the right time ?
  • Did 125 potential customers leave the store never to return ?

Similarly if we could understand the shopper demand for a given product and the conversion of that demand to sales we may have seen that, although customer service was up to the job and the majority of shoppers were converted to the point of wanting to purchase, the supply chain and stock position were such that many of the desired products were actually out of stock. True missed opportunity.

I wrote the above in 2004, things have obviously moved on a bit since then and conversion is obviously a key measure in the on-line world. I am however suprised at the limited way the physical world follows the same philosophy.

If you can’t measure it you can’t understand it. If you can’t understand it you can’t manage it and if you can’t manage it you can’t improve it.

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