Running your store, paying your taxes, and paying out your consignors is one thing, but how do you optimize your business to end up with fatter margins, happy customers, and happier partners? In this article, I'll give you a tour of our Inventory Insights report, how to use it, and what the metrics mean.
First, let's start with some background — the retail world is jam-packed with big players with fancy dashboards feeding them all the latest Key Performance Indicators. We love small businesses, and want to give you the same kind of access your big competitors have.
There are two kinds of metrics you have to balance when optimizing your sales mix — revenue, and costs. The simplest example of this is your Gross Margin, which tells you how much you've effectively made in sales. This is calculated by subtracting costs directly associated with acquiring the inventory sold (that's the back-of-house, or COGS), from your front-of-house Net Sales.
This distinction also comes in to play when managing the space in your store. Your inventory's average Days on Shelf is a cost — the longer something sits on your shelves, the more expensive it is to keep in stock. On the other hand, if that item sells quickly, the time it takes up sitting on your shelves is lower, and so the cost of having it in your store is less. Likewise, a higher price can justify keeping an item for longer. This is known as Sales per Square Foot, which you can calculate by dividing your Gross Margin by the square footage of your store.
Another more subtle tool for analyzing your store's use of its inventory is Turnover Ratio, which is calculated simply as COGS divided by your average Inventory Value over a given time period. What this number indicates is essentially how many times you sell everything in your store in a given period. Generally, a higher number is better, but that can also be an indicator that your goods are priced too low. Checking your Gross Margin as a percentage of Net Sales, and making sure that you have a good sales mix in your store can help qualify this number.
Entire books on these metrics could be written (and have been), but that's enough theory for right now!
Let's start with the overview — this section is designed as a sort of quick health check for your store, to make sure you're going in the right direction. The timeframe for this report is the past 3 months, compared with the previous three months.
We've already talked about Turnover Ratio and Inventory Value — in this case, Inventory Value is the time period's ending value rather than the average value over the last three months. This can be a useful number not only for analytics, but also for demonstrating your business' value to potential investors or business partners.
It's also worth explaining how ConsignCloud calculates your inventory value. In short, for each item, its current value is the cost of all quantity currently in stock, plus the expected consignor portion times the current quantity. Note that how much value is actually realized can change depending on how surcharges or discounts are ultimately applied.
Average Basket is the average number of items in a sale. What this number means depends heavily on your particular business, but a very low number may indicate (for example) that you could add lower priced impulse-buy items as upsells near your cash register.
Likewise, Average Ticket is the average amount spent. In contrast to most of our other metrics in this report, this factors in discounts, surcharges, taxes, refunds, and gift cards. In other words, this is the average amount of money your customers spend in your store.
Both sales metrics only apply to sales made using ConsignCloud's POS, so if you'd like a health check for your online sales, you'll need to do that through your eCommerce platform.
Next up is the sales graph, which is helpful for finding out whether you're getting better or worse at managing inventory. To that end, we've split your Net Sales out by top-performing category and plotted them on a 4-5-4 retail calendar so you can compare periods to one another across multiple years without getting skew due to weekend and holiday placement.
Finally, at the bottom of the report you'll find our inventory performance table. This is designed to be a deep dive into exactly which items are performing well — or poorly.
To help you find exactly the information you need, there are a few controls at the top that allow you to select a timeframe and comparison period and slice your data by one of Brand, Category, Tag, Price, Inventory Type, Account, Shelf, and Sales Channel.
If there's enough data, a chart will appear at the top to give you a quick overview of what the table contains by automatically graphing the column the table is sorted by. To change the way the table is sorted, simply click on one of the table headings.
Within the table itself, we've hyperlinked the leftmost column so you can click through to the inventory table to see a list of items that match that row's criteria. Finally, if you hover over any cell within the table, a popover will appear telling you whether that number has gone up or down since the previous time period.
Headings should be mostly self-explanatory, but the far-right column requires some explanation. Your inventory score is designed to be an opaque number that gives you a quick idea of how a group of inventory is performing overall, but the formula we use to calculate it is shown below:
log(2, 1 + (gross_margin * log(quantity_sold + 1) * (turn_ratio + 1) * (100 / days_on_shelf)))