The Top Retail Metrics Your CFO (and CEO!) Care About

As a CFO of a retail or ecommerce company, there are a number of key performance metrics that you should be tracking in order to measure the financial health and success of your business. Here are some of the most important metrics to consider, along with specific examples:

Revenue: This is the total amount of money that your business generates from the sale of goods and services. It’s important to track revenue on a regular basis in order to understand how your business is performing and identify any trends or opportunities for growth. For example, you might track monthly revenue to see if it is increasing or decreasing over time.

Gross margin: This is the difference between the price of your products or services and the cost of goods sold. It’s a key indicator of your business’s profitability, as it shows the percentage of each sale that goes towards covering your costs and generating a profit. For example, if your gross margin is 40%, it means that you are keeping 40% of each sale as profit after subtracting the cost of goods sold. By the way, as a retail or e-commerce business, your inventory has a big effect on your gross margin.

Operating margin: This is the difference between your revenue and your operating expenses. It’s a measure of your business’s profitability after taking into account fixed costs like rent, salaries, and utilities. For example, if your operating margin is 10%, it means that you are keeping 10% of each sale as profit after subtracting all of your operating expenses.

Return on investment (ROI): This is a measure of the profitability of your business’s investments. It’s calculated by dividing the net income generated by an investment by the total cost of the investment. For example, if you have invested $100,000 in a new inventory management system and it generates $20,000 in net income over the course of a year, your ROI would be 20%. Also keep in mind GMROI (Gross Margin Return On Inventory), a key metrics to segment and manage your inventory investment.

Customer acquisition cost (CAC): This is the cost of acquiring a new customer, including marketing and sales expenses. It’s important to track CAC in order to understand the cost of acquiring new business and optimize your marketing and sales efforts. For example, if you spend $50,000 on marketing and sales efforts and acquire 100 new customers, your CAC would be $500 per customer.

Customer lifetime value (CLV): This is the estimated value of a customer to your business over the course of their relationship with your company. It’s important to track CLV in order to understand the long-term value of your customer base and optimize your customer retention efforts. For example, if a customer is estimated to generate $1,000 in revenue over their lifetime and the cost of acquiring and servicing that customer is $500, their CLV would be $500.

By tracking these key performance metrics, CFOs and CEOs of retail and e-commerce companies can get a clear understanding of the financial health and success of their retail and e-commerce operations.