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If you own or manage a retail shop, then it’s essential to know your analytics, especially your retail conversion formula. Numbers answer nearly all your questions. Should you change your store layout, or is a new layout working effectively? Do you need more or fewer staff? Do you need to order more stock? Was a recent promotion or campaign successful?
When your business doesn’t rely on metrics and analytics, you’re just taking shots in the dark, hoping for the best and relying on instinct when it comes to measuring success.
Well, it seemed busier this week, and our sales were up, so we must be doing something right. Right?
But without metrics, it’s difficult to know where you should attribute your growth or your decline. One such metric is understanding what is retail conversion.
One vital question you should be asking that can help you better understand and answer all these questions is, What is my retail conversion rate?
To answer any analytical questions you might have about your business, you must have numbers to compare to, so the sooner you start tracking your retail conversion rate, the sooner you can begin digging into your metrics and start making more informed – and numbers-backed – business decisions.
This step-by-step guide will get you started. But first, let’s discuss retail conversion rates and why they are important.
So how do you go about calculating your retail conversion rate? It’s pretty simple when you have accurate foot traffic and sales numbers.
First, determine the timeframe you want to examine. Then, take the number of sales made and divide it by the number of customers who visited your store during your designated period, which will give you a decimal. To convert this decimal to a whole number, multiply it by 100. This conversion formula for retail will give you your conversion rate. Below is the conversion rate formula for retail written out:
retail conversion rate = (number of sales / number of customers) x 100
Pretty easy, right? And the data you receive will be invaluable to your business.
Your store conversion rate is the proportion of the number of visitors to your store to the number of visitors who made a purchase. If you’re wondering what is retail conversion rate, it essentially tells you how well you’re doing at turning browsers into buyers. Your retail conversion rate gives you critical insight into what’s happening in your store. Again, without measuring data such as this, your business decisions are basically based on guesswork.
Calculating your retail conversion rate is one of the best ways to measure the success of your business. Focusing on driving foot traffic into your store and increasing the number of transactions based purely on more bodies is one simple strategy you can employ to boost sales, but more bodies won’t necessarily equate to more money. We’ll explain why in the next couple sections.
Instead, measuring your conversion rate — as opposed to looking only at transactions — paints a much more accurate picture of how well your store is doing.
Calculating retail conversion will tell you how many leads are converting into actual sales — meaning more money for your business — as well as help you analyze other factors. And if you decide to revise any strategies, such as the goods you stock, your window displays or your store layout, or if you try out a new advertising approach, your retail conversion rate will tell you if these things are helping or hindering your bottom line.
It’s tempting to make all your business decisions based simply on transaction metrics. If you’re making sales, and you can track how many sales you make and your average transaction value, many business owners will call that a day and think of that data as “good enough.”
That’s because it’s easy to calculate your transaction data. However, when you begin to count the number of people entering your store, and whether they make a purchase, you’ll get a lot more details about how you’re genuinely doing, especially if you use a sales conversion rate calculator.
Let’s look at an example.
Say that your store made $6,000 in week 1. You had 150 transactions, so your average transaction value was $40. In the following week, week 2, you made $7,200 and had 160 transactions, so your average transaction value went up to $45. Seems like things improved in week 2, right?
Maybe not. Let’s use the retail conversion formula instead.
First, we need to know your store traffic so we can calculate your conversion rate. In week 1, you had 1,200 people enter your store. Of those, 150 made a purchase, so your conversion rate was 12.5 percent.
In week 2, you had 2,000 people enter your store. That’s a lot more foot traffic. During week 2, you made 160 sales. This equates to a conversion rate of only 8 percent. So even though your average transaction value increased, and even though you made more money in week 2 over week 1, you converted fewer sales per visitor.
Your conversion rate dropped by more than one-third.
If you had maintained that 12.5 percent conversion rate, even at the lower $40 average transaction value you had in week 1, you would have pulled in $10,000. That’s a big difference!
To accurately calculate your conversion rate, you must know how many customers enter your store. Inaccurate store traffic numbers will skew conversion results, so it’s critical to have an accurate people counting system.
Consider the helpful experts at Traf-Sys for your people counting needs. Our thermal imaging people counting systems are up to 98 percent accurate, so you know you’re getting the right numbers to calculate your conversion rate — and all other foot traffic metrics — every time.
Now that you know how to calculate your store conversion rate accurately, you may be wondering, What is a typical conversion rate for a shop?
These numbers can be a bit difficult to nail down as businesses are often reluctant to share this data — and fewer than 25 percent of retailers even engage in people counting — but industry average conversion rates for brick-and-mortar stores is around 20 percent.
One thing is certain — every industry is different, which makes it even more important to start measuring your own conversion rate and begin tracking it for comparisons, week-over-week, month-over-month and year-over-year.
And once you start calculating your foot traffic — using an accurate people counting system — you’ll be ahead of your competition and well on your way to making better business decisions.
As a retail shop owner, the worst thing that you can imagine is this scenario — a customer walks into your store, takes one look around and immediately walks out. That’s a lead that didn’t convert — a sale that wasn’t made. But this scenario is avoidable.
Many factors will influence your ability to convert.
Increasing conversion can be a matter of simply making a few tweaks. Continue tracking your conversion rates as you make changes so you can know what’s working and what isn’t.
Once you begin tracking your retail conversion rate, you can start to answer some questions based on your store traffic and revenue, which will give you new insight into your business that will help you make staffing and inventory decisions.
When you have reliable data and numbers to back it up, you can begin digging into these questions, and many more.
Once you start analyzing your data and digging into the hard-and-fast metrics that prove your company’s mettle, you’ll be hooked! You’ll want to look at all your key performance indicators (KPIs) to know how you’re doing in every aspect of your business.
Let’s dive into other important retail KPIs your store should be tracking:
revenue per visitor = total revenue / total number of visitors
average transaction value = total revenue / total number of sales
sales per employee = net sales / number of employees
year-over-year growth = (current period revenue – previous period revenue) / previous period revenue x 100
net profit = all revenues – all expenses
sell-through = number of items sold / beginning inventory x 100
retail price = wholesale price x 2
calculated using accurate people counting systems
Go ahead and embrace your inner math geek. When it comes to business, KPIs are king. The more you’re calculating, the more you know about how your business is performing, and the more you can do to enhance your performance, improve your marketing and convert more leads into customers.
When you’re ready to take more control of your business metrics, find out Traf-Sys can help you measure traffic coming into your retail establishment.
Our people counting systems are highly accurate and provide a range of benefits for your business. People counting and traffic analysis will allow you to calculate your conversion rates as well as allow you to:
Call us at 888-815-6568 to talk to our experts and learn more about our people counting system and request a free quote for services.
