Business Solutions

Tuning in Retail Performance

Critical retail performance metrics HME providers must track if they want to ensure cash sales success.

• By David Kopf
• Sep 01, 2016

When it comes to retail, phrases such as “retail experience” and “customer relationships” might sound like the business of retail sales is somewhat emotional and driven by instinct. That couldn’t be further from the case.

If anything, the business of retail is rooted in numbers, in data, in the kind of information that can help a provider truly understand how their business is performing, and what they need to change or implement if they want to succeed.

“Providers need to measure their performance in order to see if they’re on track in terms of their goals and objectives. So they need to set up specific metrics,” says Cy Corgan, national sales manager for home access equipment maker EZ-Access. Corgan has a long history in helping providers with retail sales. At EZ-Access, he helps providers learn how to sell home access products, a key retail offering, and prior to that at Pride, he helped providers sell retail mobility devices, such as scooters, as well as lift chairs and home access solutions.

Moreover, retail performance measuring is especially important given how much the industry has shifted and how steadily it continues to transform.

“Because we’re changing so much as an industry, we have to be able to react and plan, and we have to create a strategy,” says Maria Markusen, the director of Operations & Development for the VGM Retail of the VGM Group Inc. “And there are two ways to do that: you can throw it against the wall and hope that it sticks, or you can look at the day and say, ‘Here’s my starting point and my foundation, now I’m going to look at what’s going on every day so that I can adjust and readjust to what’s going on in a timely manner.”

Markusen has a long history with retail sales in the industry. Prior to VGM Retail, Markusen was co-founder of Simply Shops and COO of Simply Retail, both of which VGM Group Inc. acquired. Those organizations provided outsourced retail solutions and retail consulting for hospitals and other healthcare organizations.

“If we measure, we can react; we can be ahead of the curve; and we can communicate,” Markusen adds. “If we do those three things, we can be successful and also serve the patient.”

One provider that pays close attention to its retail performance is Mobül, the mobility store, located in Long Beach, Calif.

“One hundred percent of our revenue comes from retail,” notes Mobül Founder and CEO Wayne Slavitt. “We don’t take any insurance at all.”

After identifying what he calls a “vacuum in the marketplace” for retail mobility solutions, especially with competitive bidding looming, Slavitt — who also felt frustration going the traditional funded route with HME providers to help get mobility solutions for his mother and mother-in-law — decided he wanted to take and entirely different approach.

“I figured there had to be a better way,” he says. “I kept thinking of Kmart vs. Nordstrom, and I decided with the Baby Boomers getting older, and the market growing, that there was a real opportunity to address the market in a more respectful way, and so we launched Mobül.”

Needless to say, with all Mobül’s revenues coming from cash sales, it keeps close tabs on its performance.

“Numbers guide most decisions … and the ability to know how you’re doing, whether you’re growing or falling behind is important,” Slavitt says. “It’s also a good motivator for the staff. We discuss metrics with our staff every morning. For us, it’s a pretty active way of how we run the business.

”Whether a provider is retail only like Slavitt, just getting into retail, or has been selling some items on a retail basis for years or even decades, there are some universal performance indicators that they should be closely moni-toring to ensure that they are performing well. They act as the Rosetta stone that lets them translate the blur of everyday activity in their stores into real numbers that can be used to generate actual change. Let’s take a look them:

Gross Profit

A prevailing metric for retail sales is gross profit (GP), or as Corgan jokingly calls it “am I making money?”

“It’s important that [providers] track that on almost a daily basis,” he says. “Let’s say I got into the business saying, ‘I want to make 50 percent margins on everything I sell.’ For example, if this were a coffee shop and I were selling a cup of coffee for $3 and my profit was $1.50, then obviously I’m making 50 percent margins. Now if I got into the business, and that was my storegoal, and I’m measuring that everyday, then, perfect, I’m right on traffic.

“But if something happens, and suddenly my costs start going up, and I don’t recognize that, and now I’m selling a cup of coffee for $3 and my costs continues, adding that this is why gross profitability is the ultimate metric. “… Each day they can they can quickly measure their GP and determine if, ‘I need to change the product mix for next week or next month,’ whatever the case may be.”

Essentially, gross profit serves as the canary in the coal mine — an early indicator that something is wrong and needs to be corrected. And that is why a provider must measure all the other metrics. In addition to being the keys to increased revenues and profitability, they can also help the provider pinpoint key problems before they turn into disasters.

Cash Flow

Cash flow is a very simple metric that simply describes the difference between a retail business’s incoming cash inflows from sources such as sales or loans, and its cash outflows for items such as bills or inventory purchase. Obviously the goal is to show positive cash flow, because then the business can reinvest and grow.

“My biggest metric is cash flow,” Slavitt says. “You have to be able to balance the receipt of sales with the payment of bills.”

Being the CEO and President, I also get the fun responsibility of being the CFO,” he jokes. “So I have to ensure that there’s adequate cash that we’re generating, and make sure that is growing.”

There are multiple factors that can impact cash flow, and once again, that’s why monitoring a variety of retail metrics is so important.

Sales Per Square Foot

Sales per square foot — also called sales by unit area — is a traditional retail metric that is a very standardized retail metric. The metric is just that, how well is the store performing when the total sales are broken out by square foot. It is used universally across retail businesses as a general rule of thumb regarding the store’s performance.

On an annual basis, U.S. retailers generate roughly $300 to $350 a square foot on average (again, that’s annually), but that is averaged across a wide variety of businesses, including everything from food courts to the Apple Store (which, incidentally, rakes in an average of $6,050 per square foot annually). For numbers a little closer to retail HME, a 2013 report from the National Community Pharmacists Association put their industry’s mean sales per square foot for items other than prescriptions at $163.

Whatever a provider’s numbers might be, by regularly monitoring this key retail indicator, they can keep tabs on the general health of their business, and be aware of any changes that might be occurring either suddenly, or over time. Moreover, it might help providers with more than just one location make smart decisions about their business.

“If we have multiple stores, we want to be able to tell who is performing better, and this is an easy way to do it,” Markusen explains. “We’re encouraging providers to think like traditional retailers, so that you can start to compare your performance against other businesses to benchmark where you are, and if you are going to open another store, you can say, ‘My first store is doing about $800 per square foot, I think I can afford to be an upscale, luxury space for my next location, because I’m compatible with those stores and that shopper.’”

Customers Per Day

Obviously, location is critical for a retail business. While a mostly funded provider serving Medicare and privately ensured beneficiaries can locate their operation in a business park, that kind of setting is not going to fly. This is because retail needs foot traffic in order to survive. That is as true for a HME business as it is for a coffee shop. The provider must ensure it has an adequate number of customers coming into the door in order to drive a sufficient number of retail transactions.

“What’s your foot traffic like?” Corgan asks. “How often does someone walk in the door?”

And this is fairly easy to track. Most door chimes for retail businesses offer a counting feature that can total up the number of times someone passes in. In fact, there is a whole range of people-counting systems available to providers, along with analytic tools. Better yet, there are a variety of sensors that providers can install in each section of their store in order to track customer traffic by section.

For trending, Markusen recommends that providers initially average this across 14 to 30 days.

“That way, we can get a starting point on how many people walk in the door every day,” she says.

Customer Conversion

The next thing to track is how many of those people coming in the door turn into actual buyers. This is as simple as comparing the day’s number of sales to the number of customers that came in that day.

“You want to know how many customers you have per day, versus people who come in, stroll down the aisles once or twice, but never buy anything,” Corgan says. “How many true customers do you have during the day?”

Knowing that can help the provider identify possible issues and then start to address them. If the conversion rate seems particularly low, the provider can start to examine why those potential customers never wound up buying.

“Why didn’t they buy something?” he explains. “Did I not have something they were looking for? Did I do surveying while they were walking around to see if they needed help?”

Each one of these questions can help the provider drill-down to address issues such as inadequate inventory, or proper customer service and sales training? The key is to start working to identify why a poor conversion rate might exist. And some of the other retail metrics identified in this article might help to provide some of those answers.

That said, Slavitt cautions that conversion rates might not be as simple to count as one might expect, especially given the nature of HME sales.

“I don’t have the resources, nor do I know of any other business at the small retailer level, have the resources to monitor to store traffic versus sales, because you might have one person come in on their own, or you might have three or four people come in as one buyer,” he explains. “Those three or four people are not three or four customers, they’re really one customer, but mom is bringing along her daughter and her son-in-law and maybe a grandchild to come look at a new walker.”

Average Sale Per Customer

Now that the provider knows how many people are coming in, and it knows how many of those people are turning into a customer, it can apply some simple math to start looking at the average sale per customer. That average can then get the provider thinking about the ways it can increase that
average.

“For example, say I really want to sell a lot more scooters, and I also carry threshold ramps, and I have some ramps displayed near by scooters, but it seems that I’m selling a lot of ramps, but not a lot of scooters,” Corgan posits. “That would lead me to question, do I have the right inventory of scooters? Is everyone looking for travel scooters, but I carry larger scooters, so I’m not getting that conversion.

“That’s where the bundling and the ‘bump up’ philosophy come into play,” he continues. “So if I do have scooters and I do have a nice mix of inventory, and I also have the ramps there, I should set a target that for every scooter going out the door, I want to add on fifty more dollars, and it could be a can holder, a flag, a cup holder, a threshold ramp, but whatever it is, I want to bump each sale up by fifty dollars.”

That’s where the sales person can start asking questions and probing whether or not the customer might need a threshold ramp to get into the house or to help negotiate inside the house.

Items Per Customer

But dollar figures are only one part of track sales by customer, It’s also important to track the number of items on average each customer buys, according to Markusen. That metric an speak volumes about the retail location’s sales effectiveness.

“Let’s say your conversion rate was 100 percent, for easy math, but if they’re only buying one thing, that’s not really that great,” she says. “Say they’re CPAP patients, and all they’re buying is their mask, if they’re not buying all the stuff that goes with it … then we’re not really accomplishing our goal.”

Repeat Customers

Tracking repeat business is also important. There’s an adage that it costs 10 times as much to get a new customer as it does to keep an old one. Bearing that in mind, tracking repeat sales is a key metric for HME provider businesses, given that they work so hard to develop long-term patient relationships.

“If you treat someone nicely, chances are they’re going to come back,” Slavitt notes. “We think we do such a nice job on the customer service side, that people want to come back to our stores. In fact two-thirds of our revenue are repeat sales.”

Inventory Turn Times

In addition to knowing sales by inventory item, inventory turn times are, in fact, a crucial retail metric, particularly for the HME industry. Reason being is that, since we are talking about medical equipment, there are many items that HME businesses keep in stock that are very expensive.

The longer that expensive inventory sits on the shelf, the longer the capital spent to acquire that inventory is tied up in a kind of cancerous limbo that literally works against the provider’s cash flow. It is critical that the inventory get sold in a cash flow-intensive business such as retail sales. The faster expensive items move, the more profitability will almost exponentially increase.

And this is why monitoring inventory turn times is so important, particularly if the provider can drill down to turn times per inventory item. Then it can start to identify pricey items that are languishing in stock, as opposed to being sold. From there, the provider can start examining whether or not they can move those items faster, and how they might possibly move them faster, or they should replace those items with something that might sell better.

“If something is sitting there forever, your cash is tied up because of this item that is sucking up space that you can replace with something that’s going to sell faster,” Markusen says, adding that the some big box retailers have gotten so sophisticated that they check inventory turns multiple times an hour, because it can let them promote a specific item that is suddenly moving for whatever reason (which, in turn, leads us to our next metric).

“We look at inventory turn times by vendor,” Slavitt says. “It’s a tough road, because we have a large inventory, and when a customer comes in, we have to have what they need, but we also don’t have to have a lot of inventory sitting around waiting for that sale.”

“We have a very good relationship with our key vendors,” he says. “… These guys are partners with us … so if some inventory isn’t moving, then it becomes part of the partnership to figure out how we can do a better job.”

Unit Sales

Assuming a provider has the right product mix and customer conversion is at a satisfactory level, then it can start looking at how to optimize the sales for inventory items. By examining sales by inventory item, also known as unit sales, the provider can analyze what items it can sell more of, whether or not it needs to highlight top selling items over more traditional items.

What this is all getting down to is inventory effectiveness, according to Corgan. For instance, to take things out of the DME realm, let’s say a retailer sells televisions, but only offers a few, basic models. Well if a customer comes in looking for a smart television that can watch Netflix and YouTube, and the shop doesn’t have it, then that customer will drive a half hour to BestBuy or go online and order.

In other words, by knowing average unit sales how long each of those items takes to sell, the provider can start to get an accurate picture of whether or not it is providing the right items to the customers, and what items it might need to replace or add to its lineup in order to better serve its customers.

Slavitt says Mobül tracks unit sales, particular on its higher ticket items.

“We compare that to the previous month,” he says. “We compare the same month last year. We look at trends in terms of are unit sales increasing or decreasing.”

Sales by Department

And of course, there’s another element tied to those inventory items’ performance and that’s whether or not they’re actually being sold well. Perhaps an item could sell better if it wasn’t suffering due to factors that have nothing to do with its merits. For instance, the product might not have good sales support, might be under-promoted, or might be poorly located within the store.

“In the days when I was selling lift chairs, somebody might say, ‘Well, I’m not selling enough lift chairs,’” Corgan recalls. “In their showroom, they might have two lift chairs, and they might be in the back, in the corner, or up against the wall, or worse yet, they might have product in front of them that made it difficult for the consumers to sit in the chairs.”

Whatever the retail product category — mobility, sleep, accessibility, bath safety— if the provider wants to sell that item, but it is underperforming, the provider needs to ensure it has the right selection of product that customers want, and showcase it in such a way that clients can interact with the product and learn more about it, Corgan explains.

Sales Per Salesperson

Obviously, the sales team is a key element in the retail sales process, and if they are under performing or performing will really, management would want to now about that right away to either fix a problem or take advantage of a key staff asset.

“We’re not a typical sales organization where we say, ‘Okay you need to sell 10 people today or you’re out of here,’” she explains. “It’s how do we improve, get that person training.”

And that fix could be as simple as providing an underperforming staffer with simple sales lists of all the items a patient with one condition or another might need. In other words, the fixes could be really simple, but if the provider management isn’t aware that a team member needs that help, it will never be able to apply those fixes.

“It’s the sales person’s job to understand the bundle of things a patient might need,” Markusen explains. “But the only way to do that is to make sure the salesperson has the training they need so that the numbers start to average out by performance on daily/weekly/monthly basis for that particular salesperson.”

And let’s not forget that the positive reinforcement side of the equation is also critical. Sales per salesperson is a great way to fire up the team.

“Everyone of our sales staff have sales goals,” Slavitt says. “And we monitor them on a regular basis. And it becomes a nice little incentive for them to try and achieve those goals, because they get incented to meet them.

Mobül has a performance-based compensation program that pays commission, and each salesperson has a code that can be entered in the cash register. That said, Slavitt underscores the fact that the ultimate goal is not sales so much as it is service.

“Our approach is very soft sell; We don’t hard sell anyone,” he notes. “We never pressure sell anyone. So it’s not a situation where our sales staff gets involved in forcing someone to buy something they wouldn’t buy; that never happens. That being said, we sell a lot of product.

“Given that, we want to incent the sales staff so that when the customer is ready to buy, we’re ready to sell,” he continues. “And that’s what we use our performance-based compensation for. We have sales contest and all sorts of things that help the sales staff make the sale, but only when the customer is ready.”

Salesperson Sales by Category

Moreover, if the provider gets even more granular, it can track the types of sale by given staffer. This can start to shed light on the salespeople who might be demonstrating expertise with a particular category or disease state. For instance one salesperson might excel at selling diabetic supplies.

“You can say, ‘Wow, Jane, I really see that diabetes is a category that you’ve taken off with,” Markusen says, adding that the provider can then start to ask questions as to why. “Is it because we have more diabetes patients? Did we get a new referral source? Or, maybe Jane really understands diabetes. Maybe Jane is a diabetic herself and she can relate.

“Then, when we have a diabetes patient come in, we know to send that customer to Jane, instead of Paul, because maybe Paul is better at selling new moms what they need,” she explains.

In other words, monitoring this as a regularly tracked metric allows the provider to start playing towards the team’s strengths.

Moreover, this can also help the sales people push a particular category that is being promoted. Slavitt notes that Mobül will run sales contests on a particular category to get those items moving.

“We sell a lot of lift chairs and scooters, and we have a lot of lift chairs and scooters on the floor,” he explains. “And we like to make things exiting and interesting for our sales staff, so we have little contests once in a while.”

How and When to Track

Of course, knowing what to track is part of the battle. The other part of the battle is knowing how to track to them. Fortunately, many of the industry’s HME business management software offerings offer retail components that include reporting tools that can help providers track their retail performance. And even without them, there are various off-the-shelf and download able accounting packages available to providers that can help retail business calculate their performance metrics as well as start modeling where they need to be, Corgan suggests.

“They’re so efficient nowadays that you plug in your numbers, and where you want to be, and they’ll calculate everything for you,” he says. “There are a lot of bookkeeping software packages out there to help you run a business.”

But regardless of how providers track their data, the key is that they do it constantly. They need to know how they are performing in terms of these key metrics right now, as well as be able to trend their performance.

This is a daily, weekly, monthly, quarterly, annually tracking process,” Markusen says. “It [retail data] has to be incremental in order to be valuable. You have to be able to look at changes and patterns in order for it to have any sort of value.”

“We do same store sales comparisons,” Slavitt says. “So we’ll look at how we did last year for the same month, to see if we’ve grown, or held steady, or pulled back”

For daily tracking any of the HME software packages offer dashboarding features that can provide instant daily feedback across a variety of metrics, which Markusen recommends. (See “HME Dashboard Essentials,” in the May HME Business “Information Technology” insert, to read more about HME dashboards.) That daily feedback, mixed with the long-term analysis is critical.

“You track it, you create a dashboard, and then you watch trends,” she says.

Also, Markusen says factoring in seasonal variations is very important for providers. They need to look at how their business is performing and then cross reference against holidays, weather and the other completely external factors that will predictably change their performance. Then they can see how they are performing during what they know will be a predictably off time of the year.

“Weather or events are one of the things that we recommend tracking,” she says. “That way you can say, ‘Oh you know what, that was because of Father’s Day, that’s why sales were down,’ she says.

The Upshot

The main thing to keep in mind is that all these retail performance metrics help a provider shed light on the true performance of their retail business. From there they can start to drill down and make much more granular decisions about merchandising, sales training, advertising, branding and all the other elements that help contribute to the overall success of the retail business.

“I wish we had more data,” Slavitt notes. “We’re constantly looking for ways to get better and expand our base of business.”

This article originally appeared in the September 2016 issue of HME Business.