Once you have invested in a business, doesn't it make sense to benchmark your performance? Geoff Langham, consultant with Franchise Alliance franchise consultants, outlines the importance of knowing what will be measured before you buy.
Buying a franchise is buying your own business but with a difference; as a franchisee you are part of a branded identity and that brings with it not just benefits but responsibilities. And it isn't just you and your family that want to see success - other franchisees and the franchisor have a vested interest in your achievements.
Key performance indicators (KPIs) are simply the predetermined elements of a business (or job) which are regarded as the indicators of whether the business (or person) is performing satisfactorily.
In the franchise environment this issue has two perspectives. Firstly, what are the KPIs set by the franchisor and what do these mean to franchisees?
Secondly potential franchisees and their advisors should set some KPIs that they will look for which should reveal whether the franchisor is a good franchisor and whether the system is working well and suits them as an individual. The KPIs of a franchise system are usually arbitrarily set by the franchisor based on experience, the industry it operates in and its franchise system (hopefully with assistance from appropriate advisors such as consultants, lawyers and accountants), so it is not possible to provide a definitive list of what they should be.
In theory, they are the essential elements of the franchisee's business which must perform to the set standard if the franchisee, franchisor and the system as a whole are to succeed.
Franchisors must be careful not to create a representation as to performance, turnover, income, and the like, if setting minimum performance KPIs.
Traditionally, these indicators were items that could be measured and graphed but in more enlightened times it is understood that they need to cover more than just financial criteria. At the same time they have also become more subjective which has its own challenges: those who check KPIs need to be trained to do so to the same subjective standard as those who created them.
In franchising the dividing line between KPIs and other elements of compliance sometimes gets blurred as to what is a key element of the franchise outlet and what is a requirement to follow the manuals and agreement. Potential franchisees have to understand that what they may regard as non essential to a successful franchise outlet is in fact essential to the system or perhaps more significantly, the brand, which is of paramount importance to all franchise systems.
Franchisor's KPIs for franchisees are often overlooked by potential franchisees when they are considering buying a franchise. Yet this can be a serious flaw in the decision making process. Prospective franchisees are often caught up in the excitement of having their own business, thinking about how much money will be made or simply being part of what they believe is a failsafe system.
Reaching the bar
As a potential franchisee you need to ascertain what KPIs must be achieved. These, and the way they are dealt with, are perhaps the clearest vision of the culture of the franchisor and the system.
If you pick a system with a culture you don't, or can't, fit in with, then the situation can become financially and emotionally disastrous.
Just a few examples of the types of franchisor KPIs are: minimum sales or turnover requirements, the percentage the cost of goods represent to turnover, the percentage wages represent to turnover, the minimum number of customers or calls each week, the minimum amounts of goods to be purchased, the minimum expectations for local area marketing methods, promotions in the local area, staff requirements and many more. There may be requirements relating to signage, uniforms, cleanliness, telephone scripts or weekly cleaning of the car or van.
The KPIs will, quite rightly, be a non-negotiable aspect of the system and you must not only ask yourself: "Can I live with these requirements" but also "how does the franchisor help me achieve these and how does he manage them"?
The relationships involved in franchising are probably the most important part of a successful, long term, franchise operation both as a franchisee and franchisor. This relationship is governed by the culture and the culture is reflected in the franchisor's expectations and how they are supported and managed.
Leaving aside the issue of recruitment, the first step on this journey is comprehensive initial training in all aspects of the system including the operations manual. The second is support given at opening or commencement time, the third should be ongoing support by a franchise business manger and finally management through compliance.
Potential franchisees should gain a full understanding of how the franchisor deals with each of these elements.
The initial training should give the franchisee a clear understanding of what to do and how to do it with the end goal of achieving the KPIs through running a successful franchise outlet. There should be time within an existing franchise outlet and time with the franchisor or his trainers.
The franchisor or his franchise business managers (field service personnel) should offer assistance leading up to and at opening time. Help with the site, if it's not a turnkey handover, help with the van (purchase or lease and signage) if there is one, help with training staff if any, help with an opening promotion, stationary, uniforms - in fact help with all of the elements that will make the franchise operate well. Obviously this differs greatly from each type of franchise.
When you are operating as a franchisee you should hear regularly from the franchisor's support office. In small systems people fill more than one role but you need to ensure the franchisor offers ongoing support in one way or another. In larger systems there should be franchise business managers (FBMs). You need regular phone contact, visits at appropriate intervals and a way to keep in touch. It is your franchise business and you are responsible for it but you should have access to a mentor/coach to help ensure all is running well and achieving your KPIs.
Finally there needs to be a compliance programme. Compliance involves checking to ensure you are following the manuals and agreements and achieving your KPIs. Some franchisors call compliance by a different name such as brand alignment or encouragement. At the end of the day, it is ensuring everyone in the system is creating the same impression, conveying the same brand, providing a consistent customer experience and performing as required by the franchisor.
However the compliance programme should provide for appropriate methods of assisting a franchisee to become compliant and achieve the KPIs. It should be designed to create a compliance culture in which franchisees want the franchisor to ensure everyone is complying.
On the other side of the coin, potential franchisees must be just as clear as a franchisor as to what they are looking for. Good franchise recruitment systems will have a franchisee profile which has been carefully constructed by the franchisor and/or his advisors. This profile will be made up of essential and desirable elements of the ideal franchisee.
As a potential franchisee you need a similar list of basic items which you regard as essential or desirable based on your self-knowledge, your skills, your experience and qualifications and your culture. How do you work with others, can you accept direction, does reporting to someone else with the details of your business bother you and most importantly how does the system you are considering deal with the matters that are important to you - is it in a way you will be happy to work with medium to long-term? This exercise will lead to a list of items you regard as important or vital in a franchise system you are happy to be part of.
Some examples of potential franchisee's KPIs or important elements of a franchise system which need to be addressed if you are going to become a franchisee include: does it have a rigorous recruitment system or let anyone in (which can adversely affect the system long-term)? Will I get to see head office? Will I meet any FBMs to assess the people they use in this role? What do the FBMs do and how many businesses does each handle? Do FBMs also handle compliance? What training do FBMs receive, especially if they fill both roles? Is there comprehensive initial training? Is there any ongoing training and if so who pays? Are all the manuals fully comprehensive? What is the compliance programme and what percentage of existing outlets comply? Are there regular meetings with franchisees or is there a Franchise Advisory Council or similar? If so what is its role and how is it elected? How is the marketing levy spent, are local area marketing templates provided? Is there an annual conference and if so who pays for what? What R&D and strategic analysis does the franchisor do to keep the system vibrant and current? What was the reason for any recent departures from the system by franchisees?
It is not possible to list every item. Considerations include the size and maturity of the system and whether it is service or retail based. New systems may not have everything at the start but it all needs to be provided for in the agreements and manuals.
Be clear on both yours and the franchisor's KPIs. Take appropriate advice before you commit and keep communicating with the franchisor throughout what can be a wonderful journey if you both get it right.
This article appears courtesy of Franchising Magazine