For any retail business, there are certain metrics that are important to track if you want to ensure your business is profitable and financially healthy. To this end, one figure that’s particularly useful to keep in mind is Sales per Square Foot.
Sales per Square Foot is a helpful metric for assessing store sales over time, creating a comparison of sales in different retail locations, and determining the sales efficiency of retail stores. Sales per Square Foot is a calculation of the sales (in dollar amount) that you generate in one store location per square foot of space.
Calculating sales per square foot is helpful for retailers who want to know which stores they should expand, which stores they should reduce the size of, and even which stores should be relocated or closed down altogether. Sales per square foot can (and should) be calculated on both a monthly and yearly basis.
A higher sales per square foot is an indicator that a given location is efficient and highly performant. That being said, similar to most financial ratios, sales per square foot should only be used comparatively. With the evolution of the retail landscape and the emergence of e-commerce, Sales per Square Foot is only a relatively good measure of efficiency for retail companies.
First, determine store revenue (gross sales) for the time period that you want to evaluate (e.g. yearly or monthly gross sales. Gross sales is equal to your total revenue for the accounting period minus any returns you’ve received.
Once you’ve calculated your store revenue, divide it by the square footage of the retail location that you’re evaluating.
Formula for Sales per Square Foot
(Store Revenue/ Retail Space in sq.ft.)
When comparing different retail locations based on sales per square foot, it’s important to standardize your calculation(s) of each locations’ square footage and gross sales to make sure that there are no outliers that might skew the results.
There are many tactics businesses can employ to increase their Sales per Square Foot. These include:
Improving store layouts: if your store space isn’t well-utilized, your Sales per Square Foot will suffer. Make sure that retail locations aren’t unnecessarily cluttered or overly spacious.
Investing more in the workforce: make sure you’re supporting your employees, who are undoubtedly important drivers to Sales per Square Foot. Improving training (such as up-selling and cross-selling strategies) and retention can be a boon.
Optimizing the product line: if you don’t have enough stock of your most performant products, Sales per Square Foot will suffer. Similarly, while it may be obvious, make sure that you aren’t overstocking unappealing merchandise. Make sure you’re keeping things fresh, appealing, and aligned with the trends that your customer base most cares about.
Improving your online presence: as was mentioned above, the advent of e-commerce means that Sales per Square Foot isn’t the only measure of performance and efficiency. Think website optimization, strong online sales, and a significant presence on social media (especially in the regions around your retail locations).