3 Ways KPIs Can Strengthen Your Franchise

April 1, 2018

As a franchisor, knowledge is power. Knowing what is happening with your franchisees, and your operations as a whole, allows you to make the right decisions and changes before you’re faced with closed stores or a weakened market share.

A crucial first step in gaining knowledge is developing key performance indicators (KPIs) for your franchise that will provide relevant insight. KPIs can include financial measures such as the cost of food or materials, as well as labour or rent as a percentage of sales. Equally important are non-financial measures such as customer wait times, customer survey results and the percentage breakdown of sales by product.

Some of the most important benefits of tracking KPIs include:

1. Highlighting positive and negative outliers

By reviewing the outliers in your franchise system, you can identify your profitable franchisees and pinpoint what they are doing “right” in their business to make them so successful. This knowledge offers the opportunity to leverage their success to improve operating procedures and best practices for your franchise system as a whole. In addition, examining the revenue drivers and net income within different cross-sections, such as geography, store size or profitability, can provide the insight to develop individual plans that support franchisee growth and development on a store by store basis.

Similarly, outliers also identify which franchisees are performing the most poorly. KPIs can be used to determine common trends among those franchisees that are struggling, allowing for better decision-making in order to improve unit performance.

2. Identifying trends in individual units

At the individual franchise level, paying attention to KPI trends can make it easier to spot developing issues before a particular franchisee gets into financial difficulty. Recognizing issues and deviations early can help identify problems related to labour management, fraud or employee theft, and wastage in the buying process — all of which have a direct impact on the bottom line.

3. Detecting megatrends for the franchise group as a whole

Understanding the KPIs of the franchise group as a whole, or across broad segments of the group, can help with identifying trends in the industry or geographical location of franchise units. The franchisor can subsequently develop plans to tackle potential issues early, rather than waiting until problems grow and have a serious detriment to operations.

In order to rely on KPIs, two key criteria must be met:

Comparability

Information should be recorded in the same manner across the franchise system. If information is coded differently in the units being compared, or is not consistently tracked in a franchise unit, trends may be either missed or identified incorrectly.

Timeliness

If information is received 6 months to a year after the relevant period is complete, there is a missed opportunity to correct performance before it escalates.  For example, if margins are off due to theft, it is much better to identify that issue after 1-2 months rather than 6 months. As industry trends and life cycles become increasingly shorter, timely information is becoming more and more important.

Implementing key standard operating procedures, such as mandating a standard chart of accounts, setting timelines for providing information to the franchisor or providing franchisees with a shortlist of acceptable vendors for financial and non-financial support, can drastically improve comparability and timeliness of information.

Harness the Data Already at Your Fingertips

Your knowledge of your franchise system can increase exponentially and provide you with the power to grow and strengthen your operations. To learn how we can help you identify and manage KPIs for your franchise system, or for information on BDO’s franchising services, please contact us or get in touch with:

Are you attending the 2018 CFA National Convention?

Be sure to stop by our booth to discuss your business needs with a BDO representative!

As a national sponsor for this year’s Convention, BDO will also be leading discussions on Driving Profitability in the Face of Regulatory Change, and Improving Franchisor Profitability Through Monitoring Franchisee Results. Learn more about our full list of activities and events.

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