When the recipe calls for 1 cup Vegetable Oil do you reach for a teaspoon? When it says 16 ounces Sour Cream do you grab a scale? Of course not. Sure, you can get close with those tools, but it won’t be as accurate nor as handy.
Yet we do that in retail all the time. We use the wrong tools to measure our business.
For instance, most businesses look at Sales Growth as a barometer of their business health. If sales went up, business is good. If sales went down, business is bad.
The problem with that tool is that it doesn’t take into account what happened in your local marketplace. If your sales went up 5% but your market grew by 10%, then your business is not on the right path. If your sales were down 2% but your market shrunk by 5%, you captured a larger share of your market.
You have to know how to calculate Market Share to truly know the health of your business.
RECIPE FOR MARKET SHARE
Market Share: your percentage of the Market Potential for your trade area. Calculate Market Potential by finding the Annual Sales for your entire industry, divide that by the population of the United States and multiply that answer times your own trade area population. Then adjust for income levels. The math looks like this …
- Industry Sales = $20.2 billion
- US Population = 325 million people
- Your Trade Area = 150,000 people
- US Average Household Income = $59,039
- Your Area Household Income = $63,026 (6.75% higher than US average)
$20.2 billion / 325 million = $62.15/person
$62.15 x 150,000 = $9.3 million
$9.3 million x 1.0675 = $9.9 million Market Potential
(Note: that number can be adjusted again for one other factor dependent on your industry. For instance, if you’re in the toy industry you can adjust for the number of children in your area compared to the national average. If you’re in the boat industry, look for something along the lines of percentage of boat owners nationally and in your area.)
Figure out your percentage or share of that market and whether it is growing or shrinking. That will be a more accurate measurement than your top line sales.
CUSTOMER SERVICE MEASUREMENT
How do you measure something as abstract as Customer Service? One tool is Units Per Transaction (UPT). While several factors can influence this number including your merchandising skill of impulse items and whether the items you’re selling have more or less accessories than last year, the largest influence on this number is your sales force. Are they taking care of the customer properly? Are they completing the sale? Are they making the customer feel welcome, comfortable, and happy? Are they building trust?
The calculation for UPT is simple. Take the total units sold during the year and divide that by the number of transactions.
75,000 units sold / 22,000 transactions = 3.4 Units Per Transaction
If that number is going up, your team is doing their job.
Another measuring tool that is slightly harder to quantify, but equally effective in telling the true tale of your customer service is Repeat and Referral Business.
Repeat Business is a sign of Good Customer Service. Referral Business is a sign of WOW Customer Service. Your service was so good they had to bring their friends back with them. If you’re tracking transactions by name in your POS, you’ll know your Repeat Business. You can also ask when you enter someone new into your POS how they heard of you. If they say “from a friend” mark them as Referral.
The ideal business has a majority of their customers as Repeat and Referral. The raw number of Repeat and Referral Customers should hopefully be growing and should be a larger percentage of your traffic. The larger, the better.
MARKETING AND ADVERTISING MEASUREMENT
Sure, you can run a coupon or a Call to Action in every ad to see how many people it drives to the store. But if you have been reading this blog or following the wisdom of people smarter than me like Roy H. Williams or Seth Godin, then you know that kind of advertisement leads to short term gain and long term pain.
One other way to measure the effectiveness of your advertising is from your Repeat and Referral Business. Add those two numbers together. The remainder of your traffic is your marketing-driven business.
Yes, some of that traffic is based purely on your location. Your location is part of your marketing. Your signs on your building are part of your marketing. Your parking situation is part of your marketing. Your advertising is also part of your marketing. If the raw numbers of people coming through your doors for the first time and not by Referral are growing, your marketing is working.
Which part of your marketing is working? That is a little bit harder to measure. As famed retailer John Wanamaker said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
At least you have a tool to see if it is working in general. (Check the Free Resources for Making Your Ads More Effective to figure out how to make all halves work.)
When you use the right measuring tool, you get a better result. That’s true for cooks, bakers, and small business owners.
PS Before you plan for 2019, you really need to know what happened in 2018. Even if your top line sales rocked the world and your bank account is fatter than usual, if your Market Share decreased or your Repeat and Referral Business fell off, you have important issues you need to address sooner rather than later. I’d love to help you address those issues.