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Using KPIs in franchising: a global perspective

Using KPIs in franchising: a global perspective

Franchisors with a global footprint are increasingly seeing the value of using KPIs in their businesses

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In today’s business environment, which is both highly competitive and data rich, KPIs (key performance indicators) in franchising are becoming a must-have to succeed worldwide.

The management style connected with KPIs is especially important in franchising. You are working with entrepreneurs, not employees. An entrepreneur, worth their salt, will be motivated to succeed and will draw on the “I’ll do what it takes” mentality. This situation sets the stage perfectly for managing via KPIs.

Traditional management talks about “the carrot or the stick” as the two sides needed to lead effectively. In terms of the carrot, KPIs motivate, especially when they are displayed together with leaderboards. Having regional leaderboards in a global organization can be especially powerful.

In terms of the stick, KPIs help make clear what the expectations are for a franchise. After all, a franchisee is granted the right to operate the franchisor’s brand, thus there are obligations associated with this right.

How to use KPIs in different franchise sectors

RESTAURANT

Trends: The biggest change to hit restaurants are off-premise sales. Delivery – led by the pizza world – is taking a bite out of the industry as a whole.

KPI sample: Speed of Service is a great KPI for increasingly time-starved customers, and it does not require any new data points. Measure this automatically from the time the customer walks in or drives up to your restaurant through the point of sale system, to the time when the food is delivered to them based on your kitchen display system.

Speed of Service = (Food Order Time)-(Food Delivery Time)

SALON AND SPA

Trends: Digital disruption is affecting salons and spas, with businesses offering apps and online appointment setting. 70 per cent of spas in North America, for example, offer online appointment setting.

KPI sample: Capture Rate: Retail is a fantastic KPI because spa and salon revenue comes from two sources: services and retail sales. According to Winn Claybaugh, co-founder of Paul Mitchell Schools: “Per square footage, the footage devoted to selling products – like shampoo and hair gel – is more profitable than footage devoted to service”.

Capture Rate = Total Retail Guests ÷ Total Spa Guests

GYM AND FITNESS

Trends: Wearables sharing biometric data have emerged as a top trend in fitness today.

KPI sample: With the rent or mortgage costs associated with the space typically being the biggest expense associated with the industry, it is healthy to look at revenue per square foot (RPSF). In a franchise environment, this metric tells you what spaces are working, and what ones are not working for you. Also, if your RPSF is very low, you may want to consider a smaller space unless you intend to grow rapidly.

RPSF = Annual Revenue ÷ Total Square Footage of Facility

AUTOMOTIVE

Trends: With new automotive sales on the decline, drivers of older cars are more likely to pay to keep their car running, with the average older car owner two times more likely to pay over $1,000 to keep their car running.

KPI sample: The efficiency percentage tells you about the systems that you have in place, the accuracy of quotes and your team performance as a whole. If a tech takes four hours to complete a five-hour repair, his efficiency is 125 per cent.

Efficiency % = Sold Hours ÷ Worked Hours x 100

EDUCATION

Trends: STEM education support is a trend in education, with the Bureau of Education in the U.S. forecasting a million new jobs created in science, technology, engineering and math between 2012 and 2022.

KPI sample: Having a high attendance percentage reflects a strong operation. Some see low attendance as a good thing, after all, students paying but not attending means facilities are not used as much yet the business is still making revenue. However, this attitude is outdated. Having students attend regularly means they will come back, instead of losing interest in the program. Also, parents will leave more positive reviews.

Attendance % = Total Attended ÷ Total Scheduled

THREE WAYS TO DETERMINE KPIS IN INTERNATIONAL FRANCHISING

Your KPIs are as unique as your business. As a result, determining your KPIs can come from the following sources:

Industry experts: Whether your franchise operates in restaurant, automotive or health and fitness, you will typically be able to find an effective, numbers-oriented expert in the space. These folks tend to come from a management background, but they can also be found on an engineering, software or financial career-track. Look for them at industry conferences or in publications

Master franchisors: Franchisors with a master license have a unique view of both the local market and the franchise as a whole. As a global entity, getting input from master franchisors can help manage the dynamics of each region

Internal team: Your internal team can be a valuable ally when it comes to KPIs. Franchise consultants are a first stop on the road to KPIs, but you may want to check in with your marketing, HR and training teams as well

BRINGING IT ALL TOGETHER

Once you have your KPIs in place, you may want to invest in a scorecard program to make them easy and understandable. FranchiseBlast has created a comprehensive eBook on scorecards called The Ultimate Guide to Scorecards, which can be found at franchiseblast.com.

THE AUTHOR
Stefania Sigurdson Forbes is senior marketing director at FranchiseBlast. She is an award-winning marketing professional who has been recognized by Google in terms of best practices for franchisor marketing

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