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July 11, 2022
Category Manager KPIs: How to Find the Staff Performance Gaps Quickly?

#### Alla

PhD, Financial consultant at Datawiz

# The Main Category Manager KPIs: a Step-by-Step Analysis Guide

Category management is the most important technology for organizing business processes in a retail chain, aimed at managing categories and retail space. Its main tasks are to maximize customer interest in the category and ensure a high level of profit for the chain.

A Category Manager is a key person in retail. They are often called the "CEO of category". The effectiveness of their work has a direct impact on many indicators of chain sales.

## What is the role of a category manager?

The responsibilities of a category manager include:

• implementation of the chain's assortment policy;
• managing the sales cycle of products in one / several categories;
• agreement of delivery terms;
• formation of an assortment matrix;
• organization of competent display of goods;
• promotion of controlled categories;
• figuring out consumer demand;
• distribution of consumer channels, etc.

## What are the benefits of category management?

We have found out the experience of using category management by leading retailers. Performance indicators, which confirm the importance of the category manager's work in these companies, are:

• Savings of the cost of employees' salaries up to 40% - a few effective category managers can replace many cross-functional employees and bring more value to stores.
• Assortment optimization (reduction of active SKUs by 2 times) allowed retailers to increase the retail chain margin by 1.6 times.
• Turnover increased by at least 12% after the revision of categories.
• The inventory turnover ratio has significantly accelerated, and their penetration in the category has increased as well.

And this is not the whole list of benefits that can be obtained from the well-established work of category managers.

## List of category manager KPI metrics

Up to date, there are many indicators (KPI) that reveal to us the performance of the category manager. To systematize them and make the most convenient for analysis, we compare them with the main responsibilities of a manager:

## The main key performance indicators for a category manager

 Responsibilities КРІs for a category manager Contribute to the increased store/chain revenue - Turnover (absol. and % change) - Completion of the turnover plan, % - Sales Qty (absol. and % change) - Completion of the sales qty plan, % Increase sales profitability - Profit (absol. and % change) - Completion of the profit plan, % - Margin, % (change) - Completion of the margin plan, % - GMROI, % (change) Optimize assortment by category - Checks Qty (absol. and % change) - Avg check  - Penetration,% - Inventory turnover ratio, turns - Days sales in inventory, days Control the supply of goods to the store/chain - Sales Availability, % - Stock Availability, % - Availability difference, %

This list of category manager KPIs is not exhaustive, however, it covers the main areas of their work and assesses their effectiveness.

## Category manager KPI analysis

Consider the sequence of evaluating the performance of a category manager.

## Step 1: Assess Category manager (CM) Sales

To analyze the effectiveness of category management in sales, it is worth evaluating the indicators by controlled categories and goods:

• Turnover:
• actual value;
• turnover dynamics (absolute and % change);
• turnover plan;
• completion of the turnover plan, %.
• Sales Qty:
• actual value;
• dynamics of the sales qty (absolute and % change);
• plan for the sales qty;
• completion of the sales qty plan, %.

This kind of analysis makes it possible to single out effective managers (TOP-leaders), in whose categories sales have increased and set plans have been completed, and vice versa - "outsiders" managers.

! For the "worst" category managers, it is worth analyzing the sales metrics by product and category in more detail to identify the reasons for this situation.

## Step 2: Profitability Analysis of CM Categories

To assess how profitable the sales of the category manager were, the following key indicators are informative:

• Profit:

• actual value;
• profit dynamics (absolute and % change);
• profit plan;
• completion of the profit plan, %;
• Margin, %:

• actual value;
• margin change;
• margin plan;
• completion of the margin plan, %;
• GMROI, % and its dynamics.

This key performance indicators group helps to understand how much the assortment of the goods controlled by the category manager brings enough profit to the store/chain.

! It is important to pay attention to the Margin and GMROI.

• The margin increase indicates growth in profit for every $100 of turnover. In other words, each unit of sold goods brings more profit to the store. • GMROI - inventory profitability, shows how well the assortment is formed and whether the goods stock creates profit in sufficient size. The growth of this indicator is positive. ## Step 3: Category manager's assortment optimization The assortment management is one of the most important tasks of a category manager. In many cases, the results of their work depend on a properly formed assortment. To identify "gaps" in the nomenclature positions, it is necessary to analyze the following key indicators: • Checks Qty; • Avg check; • Penetration, %; • Inventory turnover ratio, turns • Days sales in inventory, days These indicators make it possible to find "non-selling" goods that are not in demand in the CM categories and "freeze" money on stocks. Such SKUs should be removed from controlled categories. ! The average check is an indicator that allows you to study the behavior of the customers. So it indicates how much the client spends on average when buying a particular product. I.e., if the average check for the product "Mineral water" is$125, then this means that the average cost of a customer's purchase, which includes this product, is \$125.

! Penetration confirms the popularity of the product in the category, since it indicates what percentage of checks with this good in the total qty of checks.

So, if the penetration for a good is 2%, then this means that in every 100 checks, there are 2 checks with this good.

! Turnover ratios (↑ITR, ↓DSI) indicate the speed of the sale of goods. I.e., the faster the goods are sold, the faster the money is released and the more profitable the store in the current period. Goods with a high turnover ratio should be a larger part of the assortment matrix.

## Step 4: Analysis of the availability of the goods

To avoid losses in turnover due to zero stocks of goods, it is necessary to check how well the supply process for bestseller goods is established. For this, you should calculate the following indicators:

• Stock Availability, % = Number of days with stocks / Number of days in the period * 100%;
• Sales Availability, % = Number of days with sales / Number of days in the period * 100%;
• Availability difference, % = Sales availability, % - Stock availability, %.

The ideal situation would be when the availability indicators are equal to 100%, and the difference between them is equal to zero. In the case when the stock availability is low, the store has losses due to zero stocks of goods.

Example: Product had the following data for a month (30 days):

• Number of days with sales - 20;
• Number of days with stocks - 24.

Accordingly, the sales availability is 66.7%, and the stock availability is 80.0%. In this case, 6 days with zero stocks are also days of lost sales. Therefore, in the future, you need to avoid days when the goods were not in the store. To do this, the category manager should control the inventory of all categories and timely order them from suppliers.

The following of the described steps will allow the manager to understand which category manager is the least effective and to establish the reason for this. Such retail metrics will contribute to building a highly effective team, and competent management of the assortment and increase sales of the store.

It is worth considering that the main goal for any chain manager is not to expand the staff, but to increase their professionalism. After all, this will not only improve the performance of the entire chain, but also reduce staff costs (wage fund).

For a quick and accurate analysis of the effectiveness of category management, we recommend using the "Category Managers" report on the BI.Datawiz platform for retail. Here you can create custom tables with key performance indicators that are important to you, evaluate them with the necessary detail (category/subcategory / SKU), and visually track the dynamics of their change.