The benefits of benchmarking

Measurement and reporting are essential for any business. For franchisors this becomes even more important, when dealing with multiple franchisees. Many franchisors are now looking to benchmarking tools to improve this process.

Reasons to benchmark
Next to recruitment of franchisees, performance measurement is one of the main issues franchisors face. A core element of this is comparative reporting. We believe there are three types of benchmark comparisons that are useful for franchisors:

• Time Base: Franchisors and Franchisees should track trends on a chronological basis, such as seasonal shifts in purchasing patterns, year on year performance, or performance before and after management initiatives such as training.
• Franchisee Based: Franchisors should provide franchisees with information about their performance relative to the best, worst and averages of the network. This obviously inspires competition between franchisees and encourages performance improvements.
• Industry Based: Franchisors should consider using public information such as Australian Bureau of Statistics data, to measure performance against other industries.

What can be benchmarked?
The two main criteria for benchmarking are financial and operational performance. For example in the retail environment, benchmarking can allow franchisors to analyse sales by variables including number of staff members, averages per transaction and changes over differing times of the day. Franchisors can also monitor stock, comparing what sells at different locations and determining if there are reasons for variations between outlets. Operationally, franchisors can analyse customer information, using benchmarking to build customer profiles, measure repeat business, manage feedback from mechanisms such as surveys, and manage membership schemes and loyalty cards. Staff issues can also be tracked, such as staff ratio to sales and turnover, which can help to indicate issues at particular franchisees.

Reporting and analysis
At the heart of any benchmarking system is reporting. This can range from static reports issued to franchisees, to on-demand reporting through a web portal or via email, to real-time reporting and analysis at head office. Increasingly sophisticated business intelligence tools allow information to be analysed in a variety of formats and to be presented in multiple ways, such as dashboards and scorecards.

The benefits of benchmarking
A benchmarking system will usually be implemented by the franchisor at head office, but it offers a range of benefits to franchisees also. Benchmarking can be an educational process, allowing franchisees to see what other operators are doing and provide ideas of new ways to run their business. It can also be motivational, as by seeing the performance of other franchisees they can see the potential in their own business and gain a financial incentive to introduce changes.

Finally, benchmarking can improve the day to day management of the business, with information provided in a clear, easily understandable format. For franchisors, benchmarking can play a significant role in attracting and retaining quality franchisees and maximising returns. However, it can also provide valuable support when things don't entirely go to plan. Benchmarking can help to identify any potential issues with a franchisee early and provide a trigger for rectifying the situation. This may take the form of education or advice, and through benchmarking, any changes can be monitored. When issues are not resolved, benchmarking provides supporting documentation that can be called upon in the event of the franchisee relationship being terminated. The benchmarking records in this case can provide legal backup to demonstrate any breaches of contract or sub-standard performance.

Benchmarking offers true insight
Benchmarking can be as comprehensive or as simple as a business requires and can draw on many tools and systems. The insights it provides into a business are invaluable, especially in the competitive franchising arena. Benchmarking allows a true insight into the state of your business and a clearer understanding of where it could improve.

This article appears courtesy of Professional Advantage .