August 8, 2016
As museum store professionals, we are always concerned with the age-old question, how am I doing? While there are several ways to approach a real answer to that question, the purpose of this article is to discuss Key Performance Indicators (KPI’s). The most recent edition of the Museum Store Association Retail Industry Report offers some great comparatives on many financial categories. This is a great place to start, as you determine exactly where you stand.
There are several KPI’s that I look at every single day:
DAILY REVENUE: How much product did I sell to customers, yesterday? How does that actual sales figure compare to last year, and how does it compare to my budget. When comparing sales against last year and to budget, on a daily basis, it is important to remember this is a snapshot. Visitation patterns, weather, e-commerce promotions, day of the week and other factors may impact this comparative. When you review revenue daily, your recognition of these irregularities becomes automatic.
GROSS PROFIT: Gross profit is the monetary difference between what you buy an item for and what you sell it for. Not all gross profit calculations are the same. You will need to determine how gross profit is calculated in your institution, and consistently use that information for a true comparative. Some formulas include Indirect Cost of Goods and incoming shipping costs when calculating GP, while other models list these as expense lines. The important thing here is consistency. Your POS system, regardless of what system you use, should allow you to run gross profit reports. A review of this KPI daily is less volatile than DAILY REVENUE, however lower volume institutions may see some daily abnormalities based upon the mix of merchandise you sell that day. FORMULA: GP=RETAIL-COST
GROSS MARGIN: While often used interchangeable with the term GROSS PROFIT, they are very different. GROSS PROFIT is in dollars and GROSS MARGIN is in percentages. FORMULA: GM(%)=(SALES-COST)/SALES. This is a very important indicator, but you should always remember, dollars pay the bills, not percentages.
In addition to reviewing the above every single day, I also review the month to date figures for these KPI’s. This smoothes out the data and gives a truer picture of my operation.
Every Monday morning, I review and analyze the above KPI’s for the prior week. I pay close attention to what happened over the weekend, usually our busiest time, while I was not on site.
MONTHLY REVIEW: When the accounting department issues monthly financial reports, you will have almost everything you need to evaluate your operation. NOTE: I have been told, on many occasions, that some institutions do not provide financial reports to the Museum Store on a regular basis. While difficult, this is where you, as the Museum Store Professional in your institution, must demand this information. You cannot maximize your contribution to the institution without this information, so keep pushing. It’s critical. When all efforts to demand this information fail, start pulling it together yourself. You cannot succeed if you don’t know where you stand.
TOTAL REVENUE: Does the figure on monthly financials provided by your accounting department match the figures you have been reviewing daily? If not, you must investigate and resolve.
REVENUE COMPARED TO MONTHLY BUDGET: This, like daily review, is a snapshot, representing only 1/12th of the year. In addition to seeing how you are doing, this is an opportunity to evaluate your budget process. If you are significantly over or under your budget, determine the root cause and a resolution. You may very well find that this is a result of a poorly planned budget figure. NOTE: if you are not involved in the budget process for your retail operation, get involved. No one in your institution knows your department as well as you does, so why should anyone prepare your budget without your input? They shouldn’t. If you are to be held responsible, you must insist on input.
MONTHLY REVENUE COMPARED TO LAST YEAR: Honestly, once a well-thought out budget is approved and implemented, this comparison is less important. While it is good to know, the biggest benefit to this comparison is to evaluate your budgeting process.
EXPENSES: We all know that selling stuff is fun. But how much do we spend to make that sale? Expenses include Cost of Goods Sold (COGS), Incoming freight charges, personnel costs including salary and benefits, staff related expenses such as travel and your MSA dues, Marketing, Operating expenses which includes everything from office supplies to software licenses, utilities, and rent. Not every institution will have all these categories, and some institutions will have others. The key here is to identify what is normal for your institution and track it. Every dollar you save impacts the following, most important, KPI.
NET SURPLUS (DEFICIT): In the world of non-profits, they tend to shy away from terms that are routinely used by for-profit retailers. This is PROFIT (LOSS). This is what we are in business for….to make money. Yes, I know all about supporting the mission, and educational support of the institution, but at the end of the day all retail is about profit and loss. As soon as we lose sight of that, or better yet, as soon as we let anyone inside or outside our institution allow us to lose sight of that, we become a prime target for concessionaires to come in, promise the moon, and take over our retail operation. This is truly your KEY Performance Indicator. Everything you do, every moment of every day, leads to this figure. You must compare this to monthly budget, yearly budget to date, and total yearly budget. You must know exactly what caused this number to be what it is.
OTHER NUMBERS: You have to develop a system of review that is best for your and for your institution. In addition to the above, you may want to keep a close eye on Sales per Square Foot, Sales and GP by Category, Average Transaction Amount, and Sales Per Visitor (per cap).
In summary, YOU are the retail professional at your institution. It is YOUR responsibility to operate your store in an efficient and profitable manner. The only way you can improve your operation is to know your operation. Study your KPI’s, participate in MSA learning opportunities, and reach out to your MSA colleagues. We are always ready willing and able to help each other out!
Chris Michel, Director of Retail and Parking Services, The National World War II Museum