Do your franchisees have the right numbers?
Having run a franchise business for many years, I understand the importance of performance metrics as an invaluable tool not just for the successful running and growth of the franchisee’s (and ultimately the franchisor’s) business, but also as an important part of a positive and mutually beneficial franchisor/franchisee relationship.
The best franchise systems acknowledge the different roles of the franchisor and franchisee and clarify the expectations of both parties up front. There are several key points that need to underpin the development of a robust and growing franchise system:big
Franchisees are choosing to invest in your brand because of the system, guidance and expertise you will provide – their ultimate aim being to make their business as successful as possible as quickly as possible. Yes, they love the industry, your brand and the product/service but they want to make money.
Franchisees are investing in a proven model and are relying on their franchisor to set them up and direct them for success from day one.
It is best to assume your franchisees do not have a good understanding of the key numbers and/or ratios for the business they have invested in. Even if they have a financial background. Most importantly, they do not know how to use these numbers to make quick operational decisions.
It is challenging, time consuming and often confrontational to get a franchisee to change from one system of financial reporting to another. By pass this by setting them up correctly from the beginning.
I am not talking about the P&L, balance sheet and cash flow reporting that is required as part of the standard franchise agreement. Of course the provision of these in a timely manner is a given and should easily be provided by the franchisee’s accountant. I am talking about key numbers, ratios, models that will help your franchisee assess the success of their operational decisions every month….
- What percentage should the rent be of sales?
- What is a benchmark salary/sales ratio?
- What should their Average Transaction Value be?
- Do they know the breakdown of their sales by product/service category?
- What is the impact of adding an additional dollar amount to each sale over a 4 week period?
- How many new customers/clients are they getting each week or month
- How are they setting targets for staff – weekly, daily, revenue, units, phone calls etc?
- How many customers/clients is the franchisee talking to each week?
Indicators of business success
The list is endless and will vary by industry and business. The point is, there are many indicators that a business can use to assess and predict the success of operational decisions – they need to be able to be measured, tweaked and re-measured.
My advice is to spend the time devising this list of indicators and educate your franchisees as well as your finance and business development team on the rationale and how you want these numbers incorporated into your reporting each month.
Your franchisees are looking to you for direction and the earlier you can set them up with the right mix of performance metrics, the faster they will become successful, the more harmonious the relationship and the more confidence and proof of model you will have when attracting new franchisees.
How to get your franchisees providing the right numbers
If you haven’t already:
- Work with your finance and business development team to devise the list of key indicators
- Work with a couple of willing franchisees or perhaps your franchise council to test these over a few months
- Incorporate these into your new franchisee start up process
- Launch and start educating existing franchisees on the power of these key numbers – perhaps your next Franchise conference is a great date to aim for?
This information can only benefit your franchisees and ultimately strengthen your franchise offer.
Keep it simple, transparent and focused on helping your franchisees be successful faster and you cannot lose.