Key Performance Indicators (KPIs) are a vital resource to managing your operation. Rather than relying on old adages and “I think” statements, KPIs help identify the key drivers of your store and focus your go-forward actions to address specific needs. This simple shift can make a big difference in the bottom line for small, independent retailers.
Let’s look at a controllable expense like “labor” for example. Labor is usually expressed in both dollars and percent of sales. Without KPIs to further dissect what contributes to a labor overage, a store may try to address its labor issues in the wrong areas. By tracking KPIs within the labor category to include overtime percentages; variance to labor ceiling hours; wage rates for the manager, assistants and associates by shift, the operation gains a better understanding where the pressure points are within labor.
The discipline of monthly reviews of KPIs helps keep the store financials on target when comparing against last year or this year’s budget.
Provides Clarity: KPIs provide the single greatest factor to managing: clarity. With KPI development and management, the store(s) specifically target areas of the business that need addressing — and as importantly, don’t mess up the areas that are humming along just fine. Rather than broad-based, anecdotal conclusions, a KPI management system helps drill down to the core issue at hand and focus on its resolution.
Tangible Action Items: Precisely knowing the challenges and shortfalls to address, stores can develop tangible action items to put in place in the upcoming quarter that will have a measurable impact on results. This allows the store to re-forecast results with a targeted action plan.
Benchmarking: KPIs allow the ability to measure results against like time periods with real data, not with anecdotal comments to remember the past. Further, with the appropriate level of detail, the operation can get to the root of issues rather than addressing these categories in sweeping, across the board adjustments.
Makes Budgeting Manageable: Annual budgeting becomes easier with KPIs since the budgeting process becomes a rolling quarterly forecast. Market dynamics that cause havoc in your plans and budgets are now met with a counterplan.
Cross Trains Teams: Lastly, team members can discuss and share KPI results in a concrete, disciplined fashion with go-forward action items. Store managers that are intimately involved in the KPI process are afforded the opportunity to supplement their stores with additional action items that augment, rather than conflict goals.
Key Performance Indicators take the guesswork out of your business. Set up correctly, KPIs can move a store from an anecdotal, backward reviewing to a forward planning, fact-based operation. Check out the video slideshow below for more tips.
John Matthews is the president and CEO of Gray Cat Enterprises and is responsible for the management of all consulting activities for the firm, which include retail consulting for multiunit operations; interim executive management; and project management. Prior to founding his own company in 2004, Matthews held senior management positions as president of Jimmy John’s Gourmet Sandwiches and as VP of marketing, merchandising, facilities, corporate communications, and real estate at Clark Retail Enterprises Inc. Additionally, Matthews worked for nine years in marketing management as the national marketing director of the Little Caesars Pizza Corp.