Key performance indicators, or KPIs, for franchisees are instrumental in franchise development. They are made up of a few select metrics used for gauging the success of your franchise system on a regular basis. When these metrics are developed, they become the strategic yardsticks for highly profitable unit level economics, franchise growth and success.
KPIs help franchisors measure the effectiveness, efficiency and profitability of their model. By following the model and the franchise best practices, executing well on the initiatives and measuring results, franchisors are able to see how their system performs against the top locations or industry best practices standards.
Franchising today is extremely competitive, so it is imperative that your franchise locations achieve their KPIs. The most essential KPIs are those that financially impact the business to a significant enough size and scope that they are worthy of heavy analysis. These may differ somewhat between franchise concepts, but generally speaking, there are four good measures in a business to understand how to get your customers, how to convert them, and what their overall value is to the company on a daily, weekly and monthly basis:
- Customer Acquisition
- Lead Conversion and Close Ratios
- Average Transaction
- Frequency of Transactions
Why Achieving KPIs Matters
Franchise systems are only as strong as their weakest franchisees, regardless of size. Therefore, it is important for all franchisees to hit their benchmarks.
However, emerging franchises suffer more when KPIs are missed. Poor results typically make up a significantly higher percentage of the total unit count. Ultimately, this can have a detrimental effect on your growth.
When trying to award additional franchises, many candidates will speak to several of your franchisees. If you only have five, and two are missing their benchmarks, that means 40 percent of your system may not validate well. This could cost you franchise sales and downstream royalties.
What Franchisors Should Do when KPIs Are Missed by Franchisees
Because missing KPIs is potentially more detrimental for emerging franchises than established franchises, the amount of time and effort to remedy the problems for the former will be greater.
For emerging franchisors, you must stop everything else you are doing to ensure that you can get them on the right track immediately when your initial franchisees are missing their KPIs. Unlike larger systems, you cannot afford poor validation or any potential closings early in your history. You must do whatever it takes to get the franchisee up to where they should be.
This may include some re-training, which means teaching them how to execute the model successfully again. If you do not assist them with meeting their KPIs and lose early franchisees, you will greatly increase your chances of failure.
Some franchisees, regardless of whether they are part of an emerging or established franchise system, might not understand the significance of KPIs. To make KPIs more comprehensible, franchisors should monetize the differential for franchisees when they miss their KPIs. In other words, assign a dollar equivalent on each miss. This will help the franchisee realize why following the model and listening to your advice on how to improve is the key to their success. This provides the necessary incentive to prioritize your recommendations and execute your changes.
You can also point out the franchisees who follow the model to reach their KPIs, who will assuredly be healthier, happier and good validators.
When it’s the Franchisor and not the Franchisees
In some cases, the root of the issue might be the KPIs you’ve established. Maybe they’re not attainable. Maybe they don’t make sense and need to be simplified. There could be any number of reasons why the KPIs you’ve created are unfeasible.
You can tell if the root of the problem is on the franchisor end if you consistently see that franchisees are struggling in certain areas. You need to review the processes and procedures you’ve developed to help franchisees identify and create solutions to operational or performance challenges. If those processes are routinely falling short, it’s time to take a look in the mirror.
Once you discover these shortcomings, you must develop a plan and test it to ensure you have a solution that works for your franchisees. Start by testing the plan with new KPIs in your corporate units, working with franchisees on the issue, or bringing in vendor partners that may aid in the solution. But you cannot afford to continue to ignore the issue because it’s your responsibility. These issues should be your Number 1 priority as they affect the entire system.
Franchise KPIs are Invaluable
KPIs are powerful tools. They not only serve as benchmarks, but can also be used to remedy shortcomings in your franchise system. They can help you understand where your model falls short, why it fell short and what you can do to improve in certain areas. KPIs are critical to system-wide understanding of what best practices and high-level execution looks like and how you can differentiate your brand from competitors by focusing on the relentless pursuit of perfection in your model.
With 30 years of franchising experience and more than 800 franchise owners representing over 1,250 locations for five brands, Winmark Franchise Partners can help emerging and established franchisors develop the right KPIs for growth or corrective action. Contact us here or at (844) 452-4600.