Focus on These KPIs for Franchise Success
A close look at some of the most important metrics you should consider.
This article is adapted from Scott Greenberg's The Wealthy Franchisee: Game-Changing Steps to Becoming a Thriving Franchise Superstar, which is out now via Entrepreneur Press and can be purchased from Amazon and Barnes & Noble.
Humans need to feel that they're growing. It's not enough to be. You must do. And you need ways to measure your progress so that you can know what you're doing is working for your franchise business. When you're not sure how to measure what you're doing, you compare yourself to others, even though the information you get as a result may be misleading. One solution for this is to look at different gauges. Let's look at some of the most important metrics you should consider.
This is the most basic measurement of a business. It's a good overall number to keep score. Your rankings are probably based on this number, and it matters a great deal to your franchisor, as it's used to calculate their royalty. But how your gross sales compare to other locations is less important than how they compare to your own gross sales from a previous time period. That will tell you the direction your business is headed in, and how quickly.
Related: Busting the Myths of Franchising
These numbers are only good for two reasons, and there's only one that truly matters. The unimportant one is ego. It feels good to outdo others. Maybe it'll earn you a plaque. But a franchise is not a contest or a way to validate how awesome you are. It's a means to get wealthy (in terms of money, time and quality of life). The real benefit of rankings is to help you identify what's working, so you can investigate and replicate them.
This is the truly important number. From a revenue standpoint, it's the metric that should affect all your decisions. It's the true north of your business. If your franchisor could accurately rank locations by this number, the list might look very different from the gross sales ranking. Anyone can lease a high-traffic location or invest a fortune in marketing to drive customers to their business. You can easily spend your way to a top gross sales ranking. But profit? That takes real business acumen. It's the difference between peacocks and owls. As you mingle with your fellow franchisees and talk numbers, try to find out what their profits are, even if it's just as a percentage of gross sales. Then seek to learn from those whose numbers are good.
This tells you if the business is growing or shrinking, and at what rate. Again, be careful about comparing your number to others. A franchise that goes from $250,000 to $300,000 has grown by $50,000, or 20 percent. A franchise that goes from $1,000,000 to $1,150,000 has grown by 15 percent. As the numbers get bigger, it's harder to grow at the same pace. Twenty percent is more than 15 percent, but $150,000 is more than $50,000. So which is doing better? It's hard to tell unless you can see their expenses and determine what their net profit is.
I'd put this metric right up there with profit, since customer satisfaction is the number that leads to profit. The happier you make people, the more they buy, the more they talk, and the more you make. This is often measured by looking at a business's Net Promoter Score (NPS), Customer Satisfaction Score (CSAT) or Customer Effort Score (CES). You can also look at star ratings on online review sites. When I ran my franchise, I paid attention to these things. What I cared about most, however, wasn't what customers said on a survey or on a call to their home. I cared about whether they came back or referred a friend to us.
How many people are walking through your doors? Is it the same people or new people? Repeat business speaks to good service, while new business speaks to good marketing, including happy customers doing your marketing for you. To grow, you need to acquire new customers and convert them into regulars. Knowing how often repeat customers come and how much they spend will help you determine their lifetime value. And that number will help you make marketing decisions and calculate your customer acquisition cost.
This is the amount your customers spend on average per transaction. It tells you how well you're selling. Growth occurs not just by driving more sales but by driving bigger sales. You want to grow both wide and deep. Pay attention to this number and work to boost it. The best way to achieve this is by offering more value. Focus less on upselling and more on up-serving. Strive to make the customer even happier with each transaction.
You can't make customers happy if you don't make your employees happy. Do you know how your employees really feel? Are they invested and engaged? Are you sure? Measure it. Don't just ask them how they feel — quantify it with numbers, which makes it easier to track over time.
Monitoring expenses is critical for achieving profitability. I studied my P&L incessantly, constantly scanning for leaks and opportunities to save money. I looked at which products sold and which ones lagged. There are countless KPIs and reports to help you track performance. Your franchisor has plenty of great, useful data that will help you run your business. Look at your own numbers compared to previous time periods. Comparing yourself to yourself is much more productive than comparing yourself to others. Only look to other franchisees for ways to improve your numbers.
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