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Retail Formulas


1
Break-Even Analysis

Break Even (€) = Fixed Costs ÷ Gross Margin Percentage

The break-even is the most popular ratio to understand the minimum amount of sales, or revenues, you will need to attain to cover for your expenses (fixed costs).

2
Contribution Margin

Contribution Margin = Total Sales - Total Variable Costs

To complement for the break-even analysis it’s also important to take a look at the contribution margin, which sets the amount of value not consumed by variable costs and which can be used to cover fixed costs.

3
Cost of Goods Sold

COGS = Beginning Inventory + Purchases - Ending Inventory

4
Retail Price

Retail Price = COGS + Markup

The Retail Price is the name given to the price you charge to your customer. It is composed by your COGS and a Markup applied which can range depending on your industry, product or business.

5
Margin

Gross Margin (%) = (Retail Price - COGS) ÷ Retail Price

Margin, whether as gross margin or percentage margin is a value which tells manager the percentage of total sales revenues that the company can retain after deducting the direct cost of COGS.

6
Net Sales

Net Sales = Gross Sales - Returns and Allowances

The Net Sales correspond to the real value of Sales realized by a company after deducting all the values that correspond to allowances for damaged goods, non-resalable returns and other discounted allowances.

7
Quick Ratio

Quick Ratio = Current Assets - Inventory ÷ Current Liabilities

The Quick Ratio is a useful indicator of a company’s short-term liquidity capabilities. This means that it measures, from your current assets and inventory how you would be able to cover current liabilities.

8
Sales Turnover Ratio

Sales Turnover = Net Sales ÷ Retail Stock

This formula helps you determine the company’s capability to generate sales from current assets or stock. The higher the number, the more efficient is the company in making money from existing stock, while a low number suggests that assets could be more efficiently managed to generate sales.

9
Customer Lifetime Value

CLV = Margin (€) × Retention (%) ÷ (1 + Discount Rate (%) - Retention (%) )

CLV is useful to determine the present value of the future cash flows related to a certain customer during its entire future relationship with your company. To do so, we use the average margin, the Customer Retention Rate (which will be explored later) and a certain discount rate (usually somewhere around 10%).

eCommerce Formulas

10
Conversion Rate

Conversion (%) = Number of Sales ÷ Number of Visitors × 100

The Conversion Rate is the most discussed eCommerce metric. Bottom line, the conversion rate is the percentage of people from the pool of website visitors who actually buy something from you or engage in another meaningful action (e.g. registering on your site).

11
Lead Generation Rate

Lead Generation (%) = Number of Leads Collected ÷ Total Traffic to the Website × 100

Similar to Conversion Rate, the Lead Generation helps you discover the success of your lead collection strategy.

12
Customer Retention Rate

CRR (%) = ((Number of Customers at the end of a Period - Number of Customers Acquired during the Period) ÷ Number of Customers at the Beginning of the Period) × 100

Customer Retention Rate is the percentage of customers who you were successfully able to retain from the last period to the current one. This is one of the metrics that can be used to assess customer loyalty.

13
Churn Rate

Churn Rate (%) = Number of Customers Lost during Last Period ÷ Number of Customers existing at the beginning of Last Period × 100

With Churn Rate you can assess a percentage of customers who stopped using your product within the last period, which could be the last year, quarter or month.

14
Average Order Value

AOV = Customers Total Order Value ÷ Customer’s Total Number of Order

The Average Order Value is the value corresponding to the average customer purchase. This value helps you to have an idea of the average value of your sales.

15
Return on Investment

ROI (%) = (Investment Gain - Investment Cost) ÷ Investment Cost × 100

ROI is basically the return delivered to the investor or eCommerce owner, after deducting all related costs. ROI is usually requested and used by investors to determine the attractiveness of your business.

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