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What Are KPIs and How Do I Make Them?

Updated: Aug 1, 2022

It's impossible to work in the data world and not use the term KPI. For those of you that are new to data analytics, KPI stands for Key Performance Indicators and are measurements used to gauge how successful a business is in its efforts to reach its business or marketing goals.

KPI's are created by taking metrics from your internal data sources and determining what your business needs to focus on. For example, you may be noticing that your sales are down significantly since 2021 and you want to figure out how to turn your business around. In order to do so, you need to review your sales data and determine what metrics are most important to getting your business healthy again.

In the below example, you are a toy store with one location. You notice that sales are down a whopping (-21%) from 2021 and you need to turn things around quickly or else you will be going out of business soon. You pull the following data to see what is going on:

So, do you see what I see? Sales are down, that's for sure, but the issue isn't less volume. In fact, this toy store has sold 3% more units than last year. So what is the issue? It's the fact that the AUR or Average Unit Retail has dropped. If the toy store was selling the same product mix as last year then their sales would be up and not trending down.

And this is where your KPI comes in. By reviewing the data you notice that sales are down because of your average unit retail. To fix this problem we will set a goal to increase the average unit retail by 5% from 2021 to $15.53.

And that's it! That's your KPI. Now that your KPI is set, you can work on setting action items to get there. Some examples of this may be:

  • How is my product assortment different from last year? What high price, high performing items did I take out of the mix?

  • What low-price items did I introduce this year that are driving unit sales? Is there a way to increase the retail on these items or offer similar but higher price items?

  • How many purchases is my customer making per shopping trip? Did my basket size go down? If so, what marketing tactics can I execute to increase my basket size?

  • Did I execute too many promotional campaigns this year? If so, how can I decrease my promotions so that I am not giving away products?

These are just some of the questions that you or Point of Sale Strategies can look into to determine how to hit your KPI of a $15.53 AUR.


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