Conversion rate -- what an unfriendly term!
Referring to customers as traffic? Not in my store!
Many of us in specialty retail like to think of our clientele as friends, or at least patrons whose repeat business we rely upon. We train our staff to take as much time as each unique shopper needs to make a decision and that's a large part of being a specialist. We carry better products. Our market has to do with aspirational versus commodity shopping.
In this discussion of traffic and conversion rates, we aren't suggesting you abandon your concept of customers as friends and people and start seeing them simply as numbers. Nor are we suggesting a kind of "MySpace.com" approach to acquiring numbers.
However, if you understand, truly understand your traffic numbers and how they influence sales, then these metrics can be key pieces of data by which you can:
- Assess the impact of marketing efforts
- Evaluate staff performance
- Understand your location, location, location
- Add real metrics to your merchandising history
- Measure the effectiveness of your store's layout
- Create floor coverage schedules
While they are worthy topics to be sure, we won't go into specifics of marketing or sales training in this article. Though they intimately impact sales and conversion rates, these are not directly related to merchandising itself, which is our focus here.
Understanding your traffic will help you increase sales and save money while making those sales.
Let's get some basic terms out of the way and then discuss the ways we use this data:
"Traffic" is the number of people walking in your door each day, and better yet, by hour. A simple traffic counter registers a data point each time a beam or sensor is broken. Beep! And the system registers someone went through the door. That data divided by two is your raw traffic. Retailers who regularly use these systems toss out some number of passes due to staff comings and goings, the UPS guy and other non-sales-related traffic.
If you set up a traffic counter system, don't agonize over this last consideration. Getting the actual traffic counted precisely would be interesting but it's not essential. Close is good enough, because what we're after with this effort is to look for changes over time and throughout the day. We're interested in establishing a baseline traffic pattern against which to spot the impacts from other things we do.
A simple Internet search will reveal many companies selling the hardware and software to count traffic. We do not endorse any of these companies, but for a quick look, go to: www.traxsales.com;www.prodcotech.com; www.sensorinc.com; www.trafsys.com; or www.headcount.com.
As with all things digital, these systems have come down dramatically in price in recent years. Some can be as simple as providing a readout each day which you would then manually notate elsewhere, such as in an Excel spreadsheet. The more robust systems provide you software that feeds a PC or your merchandising system. Of course, you can always hire little Johnny to sit by the door all day with a clicker, but we suspect that his thumb will wear out or nap time will arrive long before you are able to collect any meaningful data
What good will this data be to me in my small shop? Remember, data is only useful when we turn it into information.
Here are a few suggestions:
- My traffic in the afternoon is double that of the morning, but I staff five people before lunch and three after.
- I really do have a noon rush that my staff has been telling me about when I'm at the rock gym.
- It looks like it's not worth being open Sundays.
- Huh, the day before the holiday this year, we had 30 percent less traffic than last year but our sales were up 25 percent.
- I would benefit from hiring my seasonal help in April versus May.
- Location A has double the traffic of Location B.
- I guess the freeway on-ramp construction did have a material impact on traffic.
- Expanding the parking lot was a real boon to business.
- It looks like that ad in The Daily Endorphin Junkie worked!
- And many, many more.
As pure information, traffic data alone is incredibly powerful, but the real benefit comes when we factor traffic against sales and start creating conversion history.
"Conversion rate" is the blending of your traffic with the number of transactions you do, each day, and again, by hour.
Let's dispense with the math: Conversion rate = sales transactions divided by traffic count.
Even the most basic cash registers will provide us with a transaction count. More advanced POS systems will feed those transactions into the merchandising system where they can either be extracted in order to blend them with traffic counts or analyzed and stored right in the system itself.
Now we have a very powerful tool to see not only who is coming in the store when, but what buying mood those shoppers are in.
Typical take-aways we can anticipate from this metric are:
- My shoppers are buying on weekends and evenings, but just kicking the tires during the day.
- Everything else was the same, but my conversion rates went down for the same period this day/week/month versus a comparable period.
- Traffic is the same from this shift or store to the next, but the first crew converts shoppers to buyers at a 9 percent higher rate.
- My spring assortment is performing not only better in sales than last year, but also in conversion rate. The same number of people came in!
- My data shows me that moving the cash/wrap area may not have worked.
- It snowed a foot. Would you look at those numbers!
By now, you are likely converted yourselves, and chomping at the bit to know what the right conversion rates are. You want to know what is standard or how to earn an "A." That's natural, but we're sorry, we can't help you.
Conversion rates will vary widely from one location to the next. This is due almost entirely to the traffic itself. Let's look at two examples:
Store A is located on Michigan Avenue in Chicago or Newbury Street in Boston or downtown Vail. Literally thousands of people pop in every day, most taking a look around and walking out. Not because you have lousy merchandise. Not because your staff is poorly trained as sales professionals. Not because your shop is merchandised counter-intuitively. They were looking for Starbucks, or they wanted to know if you have a public restroom, or they're selling this really cool set of kitchen knives for only $29.95!
In this location, your traffic count may be astronomical, but the conversion rate may be only 10 percent.
Store B is a destination. People are driving by, not walking by. Or maybe you're located in the warehouse district or across the tracks or in a small strip center in a residential area. Shoppers are coming in because they sought you out or they are long-time shoppers or avid users of the kinds of products you sell. In this location, you will expect your conversion rates to approach or exceed 20 percent.
As we said above, these figures by themselves can be instructional, but for them to be directional, meaning indicative of the decisions you make with staffing, training, selection, prices, promotions and store layout, you should be looking for the delta or the change from one timeframe to another.
Adding in two additional pieces of data from your POS system can produce highly actionable information: Dollar sales per transaction and units sold per transaction. Let's call the summary of all this key indicators.
Below is a sample of how that data might look in a four-store environment on a monthly basis:
Even though our Store 1 crew doesn't have the highest volume dollar sales, nor the highest traffic, they are a SELLING MACHINE in terms of efficiency, with outstanding items per transaction and conversion results.
We want more stores like them! Wouldn't you?
Next issue, we'll wrap up our 10-part series with a discussion about efficiency factors that will help you sell more and spend less. Until then, happy retailing!
Have a question that is not answered here, or an observation, or even a better way of going about the business of retail merchandising planning than we have offered up? Then the SNEWS® Retail Merchandising Training 101 Forum is for you. Click here to enter a private chat section open only to SNEWS® subscribers.
This article is part 9 of a 10-part Retail Merchandising Training series produced by SNEWS® and authored by Michael Hodgson and Geoff O'Keeffe. SNEWS® president Michael Hodgson, in a former life, was a manager for five years with Adventure 16 and the general manager overseeing a team of buyers and store managers for three years at Western Mountaineering. In those roles, he learned, sometimes the hard way, how to make a living and make a profit (or not) in the world of specialty retail. Geoff O'Keeffe has held retail senior management positions at Granite Stairway Mountaineering, Adventure 16, Patagonia and PlanetOutdoors.com, as well as having served as president of Lowe Alpine Systems USA and Mountainsmith. He is currently the vice president of operations at American Recreation Products, which he is managing to fit in while working on new projects at his home in the mountains above Boulder, Colo., where he is a fourth-generation resident.