A number of franchisors have asked whether it is worth establishing benchmarks in their system. They reason that the franchisee has done their due diligence and has made the decision to invest, so it is up to them to make sure they follow the system and results will follow.

In this day and age this point of view is far from ideal. Each franchisee represents the brand and are likely ambassadors for the business, if prospective franchisees call them up, as required by the Franchising Code of Conduct. What could be worse than a franchisee mouthing off about the support they get from head office and that nobody cares?

What do you include in your benchmarking analysis?

It is now the norm for franchisors to take a very close interest in the profitability of their franchisees. Many have already established benchmarking systems in their system and are reaping the benefits.

Each business will have different drivers that influence the profitability of a business. For retail systems, the daily, weekly and monthly sales are the most obvious measure, closely followed by margins and wage costs. For business to business systems, the main driver will be the number of contacts made with potential customers and the proportion of these contacts that are converted into sales.

What are the key elements that need to be measured?

It is always difficult when looking at a franchisee’s figures to ascertain whether they are good or not. A single this year figure for sales or margins may sound satisfactory, but what are they being compared with? For franchisees who have been operating for more than a year, the basic comparison would be the last year figures. A 10 percent increase would then sound much better, unless of course the other franchisees in the system were growing by 20 percent.

It is essential that all franchisees report their P & L results using the same chart of accounts, so that every item will be posted in the right account. It is good practice to encourage franchisees to establish budgets for each financial year. The franchisor can prepare the templates and use the responses to understand where the growth is likely to come from the following year and make plans to achieve that.

This will ensure that the franchisee can then measure his own performance against last year and budget. An increase in sales of 10 percent would not be satisfactory if the budget called for a 20 percent increase.

The other major benefit is that the support team from head office can have meaningful data when they visit franchisees. This will enable plans to be made to improve performance, be it in sales, margins, or expenses.

How can you make it easy for your franchisees to provide the data?

This is much easier for new and emerging franchisors as they can start out, as they mean to go on. It is more difficult for established systems to change systems and financial software. However, to compete in this competitive space, upgrading of such systems becomes of paramount importance.

In days gone by, franchisees were required to report on a quarterly or six monthly basis. However in many cases fanchisees did not always comply, so figures became available later and later, when it became too late to be able to change direction. In addition, the franchisees were not required to use one type of financial software or even use the same chart of accounts. This meant that, even if the reports were provided promptly, the head office team found it very difficult to compare results across the system, so tended not to do it. This meant the franchisees were not getting feedback and therefore became still more reluctant to provide their figures.

Therefore the back office systems should be developed to deal with all the reporting systems, so that franchisees do not have to worry about spending their precious time on writing reports to head office.

Retailers have the benefit of many different types of point of sale systems, to report on sales, margins and stock levels, often across the whole network. The savvy systems are now linking these to online accounting packages, many of which have been developed with franchise systems in mind.

There are also complete systems available off the shelf for non-retail businesses that can be customised at little cost to each franchise system, which include CRM, sales and invoicing and financials.

Franchisors should develop their back office system so that essential data can be obtained from each individual franchise.

Summary

Many other benefits will result from the establishment of a benchmarking system. Franchisees will realise that the franchisor does care about them, franchisees will be able to learn from their peers on how they can improve their performance, marketing activity results can be measured and the franchisor will be able to see that the business model is still working and that the franchisee can make adequate returns on their investment.