How Franchisees Can Effectively Monitor Their Performance

18/03/2018 08:00 | Start a business

How franchisees can monitor their performance

Key performance indicators are an essential part of any business. And just because you’ve invested in an established franchise system, it doesn't mean that you don't need to monitor the performance of your new business continually.

Not only will this allow you to understand how your business is growing, but also enables you to share insightful franchise information with the franchisor; so that they know how to help you and your business to improve further.

What are key performance indicators?

The term key performance indicators, or KPIs as they’re known, may sound like business jargon but they’re crucial to the success of your franchise. KPIs provide you with a valuable, easily benchmarked way of assessing how well you’re doing compared to other businesses within the franchise system. They help you to recognise the things that are important to your success and then measure these success factors to identify how they’re progressing over time.

The metrics that are often used are elements such as sales volume, profit and costs. Although the majority of KPIs are numerical, in some businesses ‘softer’ metrics may be used. Depending on the nature of your business, an example of a franchise KPI might be customer satisfaction or social media engagement.

The benefits of measuring your performance

Without consistently monitoring the performance of your franchise, you can only guess about whether it’s in good shape or not. KPIs allow you to understand if you’re meeting your financial targets and whether you’re on track to achieve your long-term goals.

Here are benefits of monitoring franchise information:

1. You can measure your targets

KPIs are not company goals or targets, but rather the measurement of your goals and targets. An example of a franchise KPI may be how close you came to reaching a monthly sales target. If your franchise had set the goal to sell 100 products and you only managed to sell 60% of this benchmark, then you’re immediately aware that there is an issue.

Measuring goals in this way provides the opportunity to identify where things are going wrong and make decisions and changes to get back on track. This is the most popular reason why businesses use KPIs, and perhaps the most important.

2. You can learn from yours (and your franchisor’s) mistakes.

Measuring targets using KPIs can result in valuable conversations taking place between you and the franchisor. When you become aware of a poor result for a KPI, you have the chance to learn from the franchisor's experience and expertise.

The chances are that they will have encountered the same issue several times before and can help you face up to challenges and improve the situation. This is a huge advantage of investing in a tried and tested franchise system. Rather than reinventing the wheel, you can learn from the obstacles that the franchisor has previously overcome.

3. You can motivate your team.

If you have employees to manage, KPIs can be a great way of engendering a culture of performance improvement and help increase employee job satisfaction. Without KPIs, feedback on achieving targets and overall performance may only be able to be performed quarterly, or even worse, annually.

With the tools in place to monitor performance much more regularly, you can reward employees as and when they're achieving their targets. This ‘real-time' feedback can prove to be incredibly motivating and ensure that the achievement of goals is kept front of mind at all times.

What makes a KPI effective?

A KPI is only as effective as the action it encourages. Very often franchisees apply industry standard KPIs to their business and then don’t understand why they fail to impact results positively. You need to work with the franchisor and your team to identify which business processes need to be measured with KPIs and who you need to share this franchise information with.

Don’t forget that your KPIs should act as a form of communication and so should be treated as such. Ensuring that your KPIs are clear, concise and relevant will make them simple to understand and therefore much easier to act on.

So, what should you measure?

The KPIs you choose to measure will vary depending on the nature of your business. However, the following metrics apply to almost any franchise:

  • Sales
    Sales growth is a metric that measures profit over a fixed period. Without increased profit, franchises are at risk of stagnating and being overtaken by competitors.
  • Incremental sales
    This measures how successful your marketing campaigns are at creating increased profit and sales. This KPI is one of the most reliable ways to measure your marketing return on marketing investment. You can demonstrate which sales can be directly attributed to the franchisor's nationwide marketing campaign compared to your local promotional activity.
  • Financial
    The most common reason for franchisee failure is being undercapitalised. So, by measuring your franchise’s financial health and examining readily available working capital that could be used to meet any short-term obligations, is key to the success and longevity of your business.

Remember, KPIs are meant to be measured over a prolonged amount of time to give you an accurate overview of your franchise. Taking any one KPI on its own and reviewing it in isolation will give you a distorted view of your business’ performance.

The data only becomes relevant when it’s measured over time, and trends or changes start to emerge. When appropriately monitored, KPIs can help you to identify any current or future issues which need to be addressed.

And while KPIs are a crucial part of your business, you must be cautious of data paralysis. If you start to measure too much, you’ll become overwhelmed with data and chances are you won’t end up acting on any of it because you won’t know where to start. The key is to choose your KPIs carefully, identify trends, and take action when needed.

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