Key Driving Factors For Retail Businesses To Increase Revenue
By Ghulam Mustafa, Business Intelligence Analyst and Data Consultant, Learning Minds
It is an irrefutable fact that sales process is a dynamic, agile, and of forever-evolvingnature.
Numerous businesses believe that they can increase their sales and revenue merely by pushing their team to work harder. It is a strong misconception that should be dealt with immediately. Many businesses regard revenue as the most important KPI and focus their efforts onit. Doing this, they disregard their key competencies, strong points, market condition, product value and much more.
Revenue is driven through multiple factors, and a business cannot focus on all driving factors due to limitations of time, budget, resources,market cap constraints, etc.
Primarily, we need to understand the driving factorsand then we will discuss each driving factor from an analytical perspective. The focus will remain on key areas to increase performance that will ultimately generate revenue.
Sales = Traffic * Conversion * Average Sales Price (ASP) * Units Per Transaction (UPT)
Breakdown of Formula = Traffic * Transaction/ Traffic* Sales / Units*Units/ Transaction
Traffic is the first driving factor of revenue that indicates opportunity for any business. Let’s say you are running two retail stores, one in a mall and the other inside a marketplace. The store within the mall has a significantly higher probability of getting more traffic. Therefore, our market spend should be allocated according to the traffic. Because 1% conversion in high traffic store can lead to a significant improvement in revenue as compared to the marketplace store, where you need to increase 10% more conversion.
For example, 1% of 100,000 traffic is 1000 more transactions while 10% of 5000 traffic is only 500. Therefore, in this case, 1% impact is two times that of 10% due to the significantly high traffic. The bottom line here is that we need to incur the high traffic factor and a slight improvement can lead to massive results.
Conversion (Transaction/ Traffic):
This is the second most important driving factor to increase revenue. By increasing conversion, we can get significantly high revenue keeping our ASP (average sales price) and UPT (Units / Transaction) constant orhigher side. Conversion can increase in two ways, either by increasing transactions or by reducing traffic. Unless our transaction is not improving (with smooth ASP and UPT), higher conversion can never be a positive reality.
Furthermore, we cannot compare conversion targets between two markets that are different in terms of traffic because it is almost impossible to achieve even the same conversion in a high traffic market.
For example, 10% conversion of 5000 traffic can be achieved with slight efforts but to accomplish 10% conversion for 100,000 traffic is anextremely challenging job. Therefore, the best practice is to set your conversion targets as per your previous results. Like you can compare conversion targets with the same day in the same season. It would be a much better comparison and an improvement factor in a business.
Average Sales Price (ASP):
ASP (average sales price) is a straightforward KPI for a business. This is more related to your product positioning and branding. It solely depends on which market you are positioning your brand in. It is also a good indicator of the audience that is visiting your brands to buy. This factor can be broken down into multiple categories to analyze the market impact on each product type. Furthermore, we can correlate our ASP with conversion to see the buyer’s buying patterns and analyze overall traffic behavior to design our marketing trajectory, etc.
UPT (Units per Transactions):
UPT is the key factor to determine the impact of your sales, discounts, events, and other marketing campaigns, because UPT can explain whether our basket size has increased or not after we have run any sales or marking campaigns.
With the prices of raw materials increasing, businesses tend to increase the prices of products as well. On paper, it looks like the revenue has increased as compared to the previous month due to the increase in prices, but in reality the net profit has declined significantly. Therefore, quantitative growth is the prime factor to diagnose elements in business performance and it can give you an idea of how you are growing in terms of brand awareness and the impact of your campaigns. If we combine both ASP and UPT then it is referred to as Average Transaction Value (ATV). It is described as the average transaction amount and gives the true indication of overall traffic buying behavior while unleashing a plethora of performance queries.
Lastly, through these key driving factors, we can segregate and create matrices of our stores, products, markets. These KPIs can create our positioning matrix that will become the key breakthrough of getting immense value addition. This will help you to focus on key factors that will increase your performance in terms of qualitative and quantitative growth.