Thoughtful retailers of every size across every category are starting to measure traffic and conversion rates in their stores to manage their businesses better by selling more and spending less. To determine if you are making all the sales you can, you must start with traffic. Knowing how many visitors come to your store is one of the most basic and important measures in retailing. You might think that because you run a smaller boutique, and you’re in your store virtually every day serving your loyal clientele, you don’t need to measure traffic. You instinctively know the traffic patterns in your store—quieter in the mornings, busier at lunch, busiest on Saturdays. So, really, what is a precise traffic count going to do for you? A lot. Above all, traffic count defines your sales opportunity. If 50 people visit your store on a given day, the best you could possibly do is 50 sales, assuming everyone who visited actually made a purchase. If you want to know what is truly possible, you need to measure your traffic because gut instincts aren’t good enough.
Almost without fail, when retailers, even small retailers, see the actual traffic volume in their stores, they are shocked by how much higher actual traffic counts are compared to what they thought their traffic was. It’s not hard to understand why. When the store gets busy, you and your staff are preoccupied serving customers and you lose sight of who is coming in the store. Electronic traffic counters capture the counts that you miss. Your store’s sales opportunity is probably bigger than you think, and counting traffic will help you quantify it. Not only is your traffic opportunity likely bigger than you think, it is constantly changing. Consider all the things that can impact store traffic: seasonality, customer demographics, the competitive landscape, your advertising and promotions, and even the weather. That’s why it is important to continuously measure traffic.
Transaction counts are not the same as traffic counts
Some retailers simply count the number of sales transactions they do in a day and call it their customer count. On the surface, this makes sense. After all, isn’t the number of paying customers the count that matters most? These counts do matter but transaction counts only represent the people who visited and made a purchase, not those who came in, looked around and left without buying. These non-buyers are an important group because they represent some of the lost sales you may have been able to capture. If you don’t track traffic in your store, you have no way of knowing these people even came in.
Another important reason to track store traffic is that you need it to calculate your store’s conversion rate. Traffic count tells us how many people came into the store and conversion rate tells us what percentage of these visitors actually made purchases. Conversion rate is a measure of how well the store is performing compared to the traffic opportunity. Conversion rate is simply calculated by dividing the number of sales transactions by traffic counts. For example, if you had 30 sales transactions and total store traffic was 100, your conversion rate would be 30 percent (30/100 = .30). You can’t know how well you performed unless you know what was possible, and conversion rate can tell you how you performed compared to your traffic opportunity.
An example to illustrate the situation
Let’s say your year-over-year sales are up 5 percent, despite the fact that average ticket values and gross margins are flat. With only past sales to compare to, this seems pretty good. But what if you knew that traffic in your store was actually up 10 percent compared to the prior year? This would mean that the sales opportunity got 10 percent bigger, but your sales grew by only 5 percent. This must mean that your conversion rate went down, meaning more people visited your store, but fewer of them made a purchase. It is good that sales are up 5 percent, but sales could have been even better. Without measuring traffic and conversion rate, you will not know what is possible or how you are actually performing.
Beyond measuring performance, conversion rate is an important metric to focus on to grow sales. Store sales are a function of the amount of traffic that comes in your door, the percentage of traffic that buys and how much each buyer spends. If you want to drive sales, you need to influence one or more of these variables. If you drive more traffic into your store, holding conversion rate and average sale constant, you will certainly increase sales. But driving traffic usually requires advertising or promotions, and these cost money. Alternatively you can have your sales staff focus on increasing your average ticket. This is a great way to increase sales and something you are likely already doing. The last way you can increase sales is by improving your conversion rate, that is, by selling to more of the people already in your store. You might think that you already do a good job of selling to everyone who comes into your store, but unless you measure it you will never know. Every retailer can do better. Focusing on conversion rate is powerful because it doesn’t cost money, like advertising does, and it gets your team focused on serving every prospect that visits your store. Even a small improvement in your conversion rate can have a huge impact on your overall sales.
Traffic and conversion are two of the most fundamental metrics in retailing and if you’ve never looked at them before, you owe it to yourself to look now. Analytics can seem too complicated and expensive for your small store, but they are not. Traffic and conversion are basic measures that every retailer needs to run his or her store better, not just big retailers or retailers in certain segments, every retailer.
Mark Ryski is author of Conversion: The Last Great Retail Metric and When Retail Customers Count and CEO and founder of HeadCount Corporation, an authority on retail traffic and customer conversion analysis. For more information, please visit www.headcount.com.