Twelve ways to prepare to maximize profitability and market share acquisition. 2024 will generate pent-up demand and be a time of opportunity.
by David McMahon, PerformNOW Inc.
In light of where you feel the industry is now and where we are headed, what are the top metrics you plan to pay attention to in 2024?
To begin to answer this question, consider that 2023 was broadly marked by written sales declines for many, but not all, furniture retailers. Although shifts occurred in consumer spending in part due to slower housing markets and travel normalization, the economy as a whole did NOT, as some TV analysts predicted, enter recessionary territory. Now that the interest rate environment seems to have plateaued, let’s consider where the home furnishings economy is likely headed.
“Measure results with weekly targets, so salespeople are more likely to focus on doing the necessary daily work. It will significantly increase your chances of longer-term success.“
While nobody can predict our economic future with certainty, I believe 2024 will be a time of opportunity. Even if the present lull continues to affect the home furnishings industry, it will generate pent-up demand. Hot housing markets enable hot furniture markets. Housing sales will pick up as interest rates trend down or people get acclimated to higher rates. It is unclear how long this will take, but it will happen. Savvy business managers should prepare for this upswing. I recommend that furniture businesses focus on continued innovation to improve their practices and tools while the lull continues. Doing so will result in greater profitability and market share acquisition than competitors in the coming upswing.
I have often written that to improve something, start by tracking it. Only then can the effectiveness of your actions be measured and further improved.
Top 12 Metrics
1. Sales Floor Productivity. This metric is calculated by taking customers who bought, adding shoppers who did not yet buy (but are scheduled for defined follow-up), then dividing by the total number of customers.
Also called guest productivity, improvement in this metric results in increased traffic and higher closing rates. Those customers who do not buy on their first visit tend to generate much higher average sale numbers when they eventually purchase. That’s why improving sales floor productivity requires setting standards for follow-up with these highly profitable customers. To improve sales floor productivity in 2024, follow-up time frame and frequency standards for salespeople should be established and required. Messages sent out through both automated and manual processes will get better results when tailored to the reason each customer did not initially purchase. This increases the odds of customers continuing their journey with your organization versus shopping at a competitive stores.
2. Weekly Written Business Per Salesperson. Breaking down what you wish to achieve in 2024 into smaller, manageable bits is important. To use an analogy, when training for a big race, marathon runners start six months to a year in advance. To achieve a long-term goal, however, they typically measure results weekly. Even a month is too long to wait. The same is true for checking written business per salesperson. Measure results with weekly targets, so salespeople are more likely to focus on doing the necessary daily work. It will significantly increase your chances of longer-term success.
3. Opportunities Per Salesperson Per Week. The number of opportunities per salesperson per week required for a retail operation to succeed depends on the type of operation and the productivity of its team members. For example, a good salesperson or a designer who treats their work as a business within a business is likely to write an above-average level of sales while working with fewer customers (high sales per guest). Finding ways to get your entire team up to that level should be a priority. The best way to do this is to provide them with better leadership, tools, and techniques. If you can decrease your opportunities per salesperson per week number, while maintaining a constant level of sales, you will eventually be able to add salespeople and grow your total sales volume.
4. Number of Appointments Per Week. Retailers that provide salespeople with a system to schedule and share appointments with customers on a digital calendar achieve the highest closing rates in our industry. These include appointments for house calls, in-store visits, follow-ups and virtual conversations. Scheduling appointments shows respect for time, everybody’s most valuable resource. Salespeople who are willing to make appointments show an increased level of interest and professionalism. Data shows that salespeople with more appointments per week will likely be among the best writers. When measuring the number of appointments made per week, it’s a good idea to further break down the numbers by appointments resulting from website leads, house calls, and be-backs.
5. Sketches per Week. Sketching rooms is a proven practice that increases sales. Given the evidence, it is amazing that many retail managers across our industry still do not implement this tool. Instead, some businesses spend more money on advertising or focus on other areas that don’t move the needle as fast or as far. Simply take a picture of each sketch and track the purchases that result. This will allow you to connect sketching to improved productivity opportunities and appointments made.
“If you can decrease your opportunities per salesperson per week number while maintaining a constant level of sales, you will eventually be able to add salespeople and grow your total sales volume.”
6. Total Weekly Delivered Sales. Just as salespeople need to set shorter-term targets to achieve longer-term results, retail operations teams should do the same. Operations and supply chains run most smoothly when they are consistent. Profitability is easier to grow when throughput or delivered sales hit weekly targets consistently. Lags in the system cause swings in profitability and result in operational inefficiency. That’s why you should encourage operations managers to target weekly delivered sales minimums.
7. Website Traffic. Website traffic is a precursor to in-store traffic. This in-store traffic produces the lion’s share of revenue for most home furnishings retailers. Growing or waning traffic numbers on your website can be an indicator of your brand’s presence and the effectiveness of your current marketing strategy. Online is where the customer journey begins for most people and where a longer-term customer following can be maintained. If you are not continuously tracking your website traffic, 2024 is a great time to focus on your web stats to measure how many unique and potential new customers are looking to you as an option to meet their home furnishing needs and how deeply they are engaging with your store.
8. Written Sales Generated from Sources of Communication. John Wanamaker’s often-quoted comment, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half,” is increasingly obsolete now that smart technology can match written sales with communication and interaction sources. Also called match-back, this is often done through IP signatures attached to customers’ email addresses. It’s another reason, aside from better communication, why email address collection is so important. For instance, sales can be traced back to when a customer visited your website, read an email, scanned a QR code, used your booking calendar, filled out a form, took a survey or visited your store.
9. Rates of Digital Communication Interaction. Many furniture retailers send email promotions periodically to everyone on their general mailing list. Most of these are non-targeted and non-relevant to recipients, resulting in open rates of 20% to 30%. Some marketers say sending text messages yields much higher open rates, but that’s largely true because texts interrupt people. Retailers must walk a fine line to ensure the texts they send are relevant. I suggest moving toward sending automated messages that deliver value to customers for both email and text communications. Retailers I work with who’ve done this report achieving up to 100% open rates for their emails and texts. Tracking how effective your client communications are in 2024 is another crucial step toward improvement.
10. Open Service Per Million. After-sales service is an opportunity to improve the value you deliver and attract more customers through favorable word-of-mouth advertising. Tracking and minimizing your service pipeline is important to improve service satisfaction. Word gets around quickly, so do everything you can to jump on an issue before it becomes an advertised problem. Using web-based service ticketing systems connected to a CRM and other software is the best way to manage service.
11. Realized Gross Margin. This set of recommendations would not be complete without touching on gross margin. Here, I recommend tracking gross margin and realized gross margin. Realized margin is the percentage and dollar amount of revenue after the cost of goods sold, freight, credit card and finance fees are deducted, less any vendor rebates. This is the amount that you have to pay for all your operating expenses and make a decent profit. Realized gross margins can usually be tracked accurately on a delivered basis, reported on financial statements at the end of each month. However, gross margin after landed cost of goods should be tracked more often. Look at margins on a delivered and written basis, as often as daily and weekly, to ensure that your actions are pushing business in the right direction.
12. Cash to Operating Expense. Calculated as operating cash divided by monthly operating expenses, this final metric I encourage you to follow in 2024 is a measure of cash flow, the ultimate business improvement and strength metric. The primary source of cash is profit produced from sales after all expenses are deducted. The most significant expenses that affect cash flow are the landed costs of merchandise, payroll, rent, advertising, and warehouse operations. Other cash is either generated or reduced by the stability of large uses of funds such as inventory accounts payable and customer deposits. To figure out how many times your cash covers your operating expenses, take your cash and divide it by your monthly operating expenses. Growth in this number usually means higher profit and stable use of funds.
“Measure effectiveness by taking a picture of completed room sketches, then track the number of sketches that result in either a purchase or a follow-up.”
Conclusion
2024 will likely be similar to 2023: full of ups, downs, challenges and opportunities. It is unlikely to be a year of exceptional demand, such as we experienced during the pandemic years. Economies in the home furnishings industry are very regional. Some areas will be more vibrant than others, and some regions will have more formidable competitors. Whatever region and economy you find yourself in, work to be better than your competitors. There are considerable advantages to be had by investing in improvements and doing things they are unwilling to do. Progress is achieved by getting out of comfort zones. Choose the metrics—these 12 or others—that you feel will drive your business forward. Using the right metrics to track improvement in operational areas you’ve focused on will boost your competitive advantage. When the economic environment swings back in favor of home furnishings, those who have already focused on improving operations will achieve the most profit and a higher share of consumer spending.