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Sales Metrics that Work June 1, 2007

Posted by David Dirks in Sales Metrics.
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dirksphoto.jpgWhile the Big Dogz sometimes miss the mark on getting to know their customers better, there is one area they generally excel in. Sales metrics, whether in retail or services-based businesses, are critical indicators for any small business. You need ways to help you shape the course of your sales, marketing, product/service selection, packaging, etc. Developing and incorporating sales metrics can go a long way to helping you grow a profitable business.

Here’s on simple metric (especially for retail): sales per square foot vs. cost per square foot. This simple metric is a broad indicator of the general health of your business. It’s simple to calculate. Take your total sales for say, a month, and total it up, then divide by the number of square feet dedicated to sales. Don’t include space such as warehouse, office, etc. Include only space where sales take place. Then calculate your total expenses (everything) for that same month and divide by the number of square feet of selling space (again, don’t include non-sales space).

Your calculation might look like this:

$10,000 (total sales for month) divided by 1200 square feet = $8.33 sales per square foot.

Now let’s look at expenses.

$6750 (total expenses for month) divided by 1200 square feet = $5.62 per square foot of selling space.

So what does having $8.33 sales per square foot versus $5.62 in expenses per square foot tell you? Again, as a very broad sales metric, it’s the size of the gap between the two that starts the process rolling. This metric is designed to get you to ask yourself more questions about your business than provide any immediate answers:

Is the gap between sales per square foot and expenses per square foot enough to help me to reach my financial goals (i.e. what I need to make a living and the whole effort worth while)?

What can I do to increase the gap between sales and expenses?

How does my product selection and layout impact my ability to increase sales per square foot?

Does this indicator fluctuate much month-over-month? Why?

What are my best sales per square foot months? Why?

What would happen if I increased sales space and decreased office support space? Would the increase in sales space justify the effort?

What expenses can I reduce to increase the gap between sales per square foot and expenses per square foot?

How does my marketing spend (or the lack of) impact my sales per square foot?

Sales metrics, like the one we use here, are designed to force you to question everything, including your pet brainstorms that you’re emotionally attached to. This way, you’re always challenging yourself in a way that truly looks to improve business performance and profitability. Leave the ego at home.

In the next blog, we’ll take a look at another key sales metric: Sales/revenues per employee (including you).

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