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5 Business Performance Metrics Franchisees Should Track

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5 Business Performance Metrics Franchisees Should Track

5 Business Performance Metrics Franchisees Should Track

What is a Business Metric?

A business metric can be defined as a quantifiable measure a business uses to track, monitor, and assess the success or failure of various business processes. The main point of using business metrics is to communicate a franchised business’s progress toward certain long-and-short-term objectives. Cost management is often a goal of using these metrics.

Growing a business requires transitioning from the emotional to the objective. Determining whether a business is successful or not shouldn’t be based on positivity but rather on clarity. Seeing things for what they are. Numbers never lie at the end of the day; they also do not judge. That’s why having measurable key performance indicators (KPIs) to know the truth about what’s going on is important.

In the age of first-class technology never has data been so readily available to franchisees. Modern POS systems, good accounting software and diligent data entries give you access to a cumulation of information in seconds. Monitoring this data is vital to plugging holes and seizing opportunities. Franchisees need to watch their number with the utmost level of dedication.

What KPIs Should a Franchisee Measure?

The KPIs that you should measure to ensure that your franchise is healthy are sales, growth rate, expenses, employee satisfaction, and profit.

  1. Expenses

Monitoring and managing expenses are critical to ensuring profitability. They say that a “penny saved is a penny earned.” However, in franchising, you pay a royalty on your earnings. This means that every rand saved is worth more than a rand earned. But you can only save if you know what your costs are.

Set benchmarks for each expense that you will be spending on and relate it as a percentage of sales. For example, set labour at 18% of sales or rent at 10% of sales, etc.

  1. Growth Rate

The growth rate is the change in your sales performance for a specific period. This will indicate if your business is growing, shrinking, or stagnant and at what rate. It can be beneficial in predicting future performance.

For example, a franchise that goes from R250 000 to R325 000 has grown by 30% and a franchise that goes from R650 000 to R812 500 has grown by 25%. Over time you will acknowledge that as gross sales increase, it’s harder to grow at the same percentage. Even the idea that you may be grossing a higher amount each time it’s important to remember that having high expenses decreases your profits significantly, hence grossing R812 500 may not necessarily be better than grossing R325 000.

  1. Employee Satisfaction

Happy employees provide better service. It will be important to measure and monitor your team’s level of satisfaction. Stay away from making assumptions, especially about your best employees.

Ways in which you can measure the level of satisfaction of your employees is to

  • Talk to them regularly.
  • Have weekly or monthly meetings with the team where open dialogue is promoted.
  • Have an open office policy with your staff so that they feel comfortable in raising any issues that they might have.
  • Never rule your staff from a place of fear and dictatorship.
  1. Sales

Sales are the most basic measurement of a business, to the franchisor it matters a great deal. Sales are utilised to rank the franchisee and calculate the royalty. Sales are a relevant indicator of performance, however, this figure alone won’t tell you, things like sales trends, where sales are coming from and, most importantly whether you are making a profit or loss. Sales require other KPIs to provide context otherwise it means very little.

  1. Profit

In a business setting the most valuable KPI is profit. It’s your four-leaf clover. It’s why you are in business. The KPIs mentioned above are just sub-indicators of how things are progressing and what should happen. You analyse and respond to these indicators to know how to adjust operations and improve your margins. When looking at the other KPIs you should have profit in mind.

What Can The Franchisor Do To Assist?

  • The franchisor should provide the franchisees with financial management training and support programs which enable franchisees to know how to prepare and analyse a franchise Profit and Loss Statement.
  • In addition, the field support staff is required to have some financial analysis background and training. They will be able to assist in detecting the red flags in the franchisee’s P&L statements. They should effectively communicate any tips and traps to the franchisees. The field service staff is the first point of contact for the franchisees they should be able to offer the necessary guidance to the franchisees so that any failure that could be avoided does not materialise.

Conclusion

These metrics are just a guideline for what to watch out for to be successful. However, they are not set in stone to guarantee any form of success, they do ensure that any surprise problems can be avoided. With good business procedures/guidelines and systems, it shouldn’t take more than a few minutes a day to input the data and generate the reports needed. Keep track of the numbers and ensure that you work smart and not hard.

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