Retail Math 101
In this retail math guide, you will learn the basic concepts and their respective formulas, as well as the practical applications of these concepts.
Watch the video on each concept, and then follow the links for in-depth reads, practical examples & best practices.
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Introduction
Retail math refers to a set of formulas used by retail businesses in their day-to-day operations to calculate certain retail KPIs and metrics that measure the performance of the business.
Importance of Retail Math for Managers & Owners
It is very important for store owners and managers at any retail business to understand and practice using the different retail math formulas on a regular basis, in order to be able to make the right decisions for the business.
There are different sets of formulas for each retail function, and professionals only need to familiarize themselves with the relevant retail math concepts related to their function. For example, the sales and operations team at the retail business will be dealing with a different set of formulas than the buyers and merchandisers.
For retail owners and entrepreneurs, it is important to be familiar with all the formulas, in order to be able to manage the whole business and assess the performance of your teams.
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Retail Math for Sales & Operations
The sales & operations team will be dealing with calculating and analyzing the following retail KPIs through daily sales reports. Tracking those KPIs helps the managers identify the areas of underperformance and create action plans to address it.
The sales equations helps retail managers identify what’s behind a good or bad sales performance. It also helps in testing different scenarios with different KPIs, and see how they can affect sales.
Further Reads
Tracking sales KPIs can help you increase sales at your retail or ecommerce store, by applying the relevant sales techniques to increase each metric, such as up-selling, cross selling and suggesting add ons.
Further Reads
Calculating and tracking same store sales or “comps” helps a retail business make better decisions, because it shows the real sales performance on a like for like basis. For example, LFL de-growth can show if the business has started to over-expand and cannibalization of the stores to each other has started to happen.
Further Reads
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Retail Math for Buying & Merchandising
Using retail math for buyers and merchandisers would help maximizing the return the business is getting from its inventory, by buying it right in the first place, pricing it right and then managing it efficiently to get the highest gross margins out of it.
Inventory turnover measures how many times a company turns its inventory in a year.
Check out the benchmark for your retail segment.
Further Reads
GMROI measures how much a company gets in return for every dollar invested in inventory.
Further Reads
The open to buy process is the scientific way to calculate exactly how much inventory you need for your business. It is a very critical concept, and mastering it will help you stay on top of your inventory all-year-round.
Further Reads
RESOURCES
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