Over 154 Years of Service to the Furniture Industry
 Furniture World Logo

Metrics: Look Forward To Improve Performance!

Furniture World Magazine

on

LOOK FORWARD TO IMPROVE PERFORMANCE!

Consider using the kinds of forward- looking pipeline metrics that publicly traded companies use to report guidance about strategies, tactics and metrics that drive future performance.

I’ve heard a fair amount of bellyaching in the furniture industry lately—mostly blanket statements about slow traffic and sales numbers being way down from last year. Retailers have also asked me, “What are you seeing, and why are we not able to bring in customers like we used to?”

The Traffic Culprit

Furniture retailers are closely monitoring sales numbers produced from close rate, average ticket and foot traffic. For the most part, they find the first two metrics (close rate and average sale) to be similar to those from 2023. Based on this, most deduce that lower furniture sales are entirely caused by slower traffic resulting from economic conditions largely beyond their control.

Although sales in the furniture industry are mostly down, some retail operations are excelling and planting seeds for future growth.

Forward-Looking Metrics

I have a different opinion regarding what’s happening with sales performance in brick-and-mortar operations. In general, the furniture retailers that outperform their competition focus on the future. Those whose performance fluctuates with the economy generally look to the past to guide their decision making by using the standard sales formula (in-store close rate x average sale x in-store traffic = total written sales). This metric is a backward facing performance indicator. Retailers who believe that the KPI results of a past month predict what a future month’s results will be have unwittingly added hope and luck into their success equation.

“If you see a consistent decline in open sales, expect poor financial performance and declining cash flow to follow.”

I recently listened to some conference calls held by publicly traded furniture operations, including one hosted by RH (Google: RH Investor Relations March 27, 2024). In addition to reporting on what has happened over the past year, RH gave “guidance” about what they believe will happen. Guidance includes information on the strategy, tactics and metrics that will drive future performance. It sets strategic and tactical direction. I believe every furniture business should look more toward the future, no matter its size. What follows are several forward-looking indicators that will help drive your performance.

Sales Pipeline

In the March/April edition of Furniture World (visit www.furninfo.com/authors/david- mcmahon/6), I introduced Sales Pipeline Management, a concept seldom used in the furniture industry. However, it is one of the most important high-ticket sales metrics in industries where consumers research purchases before buying.

A few progressive merchants track the names of the seven out of ten customers who don’t make a purchase, but even fewer do anything impactful with this information. The central point that I would like Furniture World readers to understand is that those 70% are not necessarily lost. For example, if an up does not buy right away, but there is agreed-upon follow-up, they will be moved on to the next pipeline stage: not yet a win, but still a prospect. No prospect should be “closed out” of the selling pipeline unless:

A pipeline is a group of prospects who remain in the market to buy but have not made a final decision. These are often shoppers planning bigger projects that include multiple home furnishings items. Coincidentally, RH mentioned during their recent conference call that selling “spaces” instead of selling “products” will drive their future revenue growth. Selling spaces leads to bigger tickets but requires more sales professionalism and positive retail experiences.

To get an idea of what future sales might be, you can measure the sales pipeline broken down by store and by sales associate. You should also track the approximate dollar amount for each prospect and estimate when deals will close. The traditional industry close rate formula measures past sales, but the pipeline formula marks customers as a “no-sale” until they are no longer in the market to purchase. By starting to track and use a digital pipeline for future business, you will get an idea of how much you need in your pipeline to achieve targeted sales numbers. New traffic you close immediately is constantly streaming into your stores. The portion of sales you do not close immediately but remain in your follow-up queue represents your pipeline opportunity for future traffic (assuming that you provide your prospects with excellent retail experiences).

Booked Appointments

Booked time with prospects results in near-certain sales and significantly higher average tickets per customer. Thus, to predict business coming your way soon, you should look at the number of in-home and in-store appointments scheduled per salesperson. Companies focusing on scheduling appointments benefit from much higher weekday sales than those relying on walk-in traffic with normal close rates and average tickets. Remember that with this and any other metric, if it’s the first time you’ve tracked it, monitor it first to develop a baseline. After that, take appropriate actions to improve and then raise your bar.

Pending Carts / Open Quotes

A pending cart is a list of items a prospect and salesperson build prior to finalizing a purchase. Technology can help salespeople develop product wish lists and fill carts using mobile phones to enable more efficient use of shoppers’ time. Once a cart is nearly finalized, the next step is often to create a formal quote or close the sale. Either way, if shoppers who are not ready to buy (today) have pending carts and formal quotes it leads to better relationships, more professional experiences and a deeper understanding of what future sales are likely to be.

Website Traffic

People most often shop on furniture websites before visiting physical stores. Website traffic matches back to actual sales. It’s a correlation I’ve witnessed firsthand with many of our clients. Integrated systems make it easy to track current customers who visit retailer’s websites before visiting in-store and buying something. That’s why it makes sense to keep track of the visitors (known and unknown) to your website, find out what they are clicking on and where they are referred from. This can be a precursor to in-store visits, a portion of which will result in sales.

Revenue Concentration

Revenue concentration is the portion of sales originating from: repeat clients; customers who spend the most; or belong to certain market segments. If your sales associates are currently working with more of these VIP clients it bodes well for future sales. If you discover they are working with fewer higher-spending clients, your next revenue period may be lackluster.

“Building the number of pending carts and quotes with customers who are not ready to buy (today) can lead to better relationships, more professional experiences and a deeper understanding of what future sales are likely to be.”

Open Sales

The open sales metric is a valuable measure for home furnishings retailers. Instead of only measuring written business, measuring open sales and quotes represents the pipeline for delivered business. Keeping track of open sales overall by store and by salesperson will give you a good idea of how your financial picture will shape up in the future. Open sales numbers are also of interest to salespeople who are paid on delivered commissions. In retail home furnishings, a large portion of cash flow comes from customer deposits, which are directly related to open sales. So, if you deliver at the same clip or near capacity, you will produce better cash flow and delivered sales if your open sales and quote pipeline grows. Alternatively, if you see a consistent decline in open sales, expect poor financial performance and declining cash flow to follow.

Cancellations / Revenue Churn

Cancellations of written sales, also known as revenue churn, kills cash flow and lowers financial performance. For this reason, it makes sense to track cancellations, understand why they happen, and implement processes that will lessen revenue churn.

Growth Initiatives

Ongoing investment in training and systems to improve future performance should be a part of every company’s business model. Allocate sufficient funds to provide the best customer experience and give your employees every available tool and technique to grow your business. Many furniture companies choose to invest in their people and processes ONLY in good economic times. That may seem prudent to some; however, when recovery comes, as it always does, businesses that have substandard systems and processes reap lackluster rewards compared to their competitors that invest in continuous improvement. Those that halt investment in tough times are forced to play catch-up with those businesses that stay the course, lead, and invest for their future.

If you have ongoing growth initiatives, strategies and action plans in place, you are more likely to achieve excellent results than if you solely look at past performance.

Diminishing Ad Returns

Advertising tends to be more effective in booming real estate markets and low-interest rate environments. It’s necessary at all times; however, it can reach a point of diminishing returns, especially in down markets, if geared only toward driving immediate in-store traffic. As an analogy, when more fish are in the sea, the net will catch more. When fewer fish are out there, you can throw the net repeatedly and not see immediate results. However, marketing for the future can help you determine what to expect regarding future traffic and sales. That’s why it’s essential in down markets for smart marketing people to find innovative ways to capture attention and leverage existing customers by providing better experiences. Consider a scalpel—segmented marketing approach based on relevancy versus a mass market blast approach in slower economic times. Remember that word of mouth is one of the most powerful forms of retail advertising.

“It’s essential in down markets to engage with smart marketing people to find innovative ways to capture attention and leverage existing customers by providing better experiences.”

Conclusion

Looking at past performance using the standard sales equation is important. However, it does not determine future results. Focusing only on what already happened will have the unfortunate effect of making your business more reliant on economic factors beyond your control. Three things that are NOT part of any performance equation are hope, complaint, and inaction. I advise you to spend some of your time looking to the future to provide guidance for where you want to go. For inspiration, look to companies like RH and other publicly traded businesses that report to their shareholders. By setting metrics, strategies, and tactics for the future, you will increase the likelihood that your company’s future will be aligned with your performance goals.



 

About David McMahon 
David McMahon is founder of PerformNOW Inc.  PerformNOW has three main products that help home furnishings businesses improve and innovate: Performance Groups (Owners, Sales managers, Operations), PerformNOW CXM (Customer eXperience Management systems and processes), Furniture business consulting.  Your can reach David at david@performnow.com.