Focusing on the Numbers That Matter

I’ve just returned from the 2016 IFA Convention. One session I particularly enjoyed was a turnaround case study by Catherine Monson, CEO of FASTSIGNS. Catherine took the reins of FASTSIGNS in 2009 as part of a private equity deal that also saw the retirement of the company’s Founder. At the time, same store sales in this 500 strong network were down by 16%.

In a whirlwind keynote address, Catherine outlined 20 specific strategies she implemented over five years that resulted in an impressive 43% increase in same store sales, an increase in average franchisee net profit on sales from 12.9% to 18.1%, and an increase in the franchisor’s annual net profit from $6.9m to $13.2m. What most impressed me was her focus on the metrics used to measure progress against their four strategic goals, which were to increase franchisee profitability, increase average store sales, increase the value of the brand, and increase franchisee satisfaction.

I am often asked by clients what Key Performance Indicators (KPIs) they should be measuring, and we regularly discuss these in FRI’s Summits and Bootcamps. So I was fascinated to hear the list Catherine presented, which I have to say is one of the most comprehensive and well thought out I have seen. With Catherine’s permission I will share them with you here. I strongly recommend you consider how your team could use these to keep everyone in your network focused on what matters. The great thing about well-constructed metrics is they promote transparency and accountability at all levels of a franchise network.

Individual Franchisee KPIs

Each franchisee is regularly measured on these KPIs. As you read them you will appreciate the focus these provide, not just for franchisees, but also for the field support team.

  • Net Promoter Score (measured by customer surveys)
  • Average Sales per Employee (a great productivity measure)
  • Average Invoice Value (highly correlated wth profitability)
  • Percentage of Repeat Customers (needs to be not too high)
  • Percentage of Redos (work that has to be redone)
  • EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortisation)
  • Cost of Goods and Payroll Expenses (a franchisee's biggest expenses)
  • Franchisee Engagement (a measure of participation and compliance)

Franchise Network KPIs (overall and by region)

Note that some of these reflect the individual franchisee KPIs above, and can be used to measure the performance of regional or field support managers responsible for groups of stores.

  • Comparable Same Store Sales
  • Average Invoice Value
  • Average EBITDA
  • Store Resale Multiple (a measure of brand health and capital return to franchisees when stores are sold)
  • Percentage of Stores Below Minimum Performance Standards
  • Franchisee Satisfaction (benchmarked against other brands in the franchise sector)
  • Industry Awards and Rankings

Franchise Development KPIs

These are used to measure the effectiveness of franchisee recruitment managers and recruitment strategies. Are you measuring these?

  • Number of Candidate Enquiries (Leads)
  • Cost per Enquiry
  • Cost per Enquiry Source (enabling comparison between sources)
  • Cost per Franchise Granted
  • Closing Ratio (Enquiries to Franchises Granted)
  • Closing Ratio per Franchise Recruitment Person

Franchisor KPIs

This is how the franchisor head office team is measured.

  • EBITDA Margin (Profit as a percentage of revenue)
  • EBITDA per Franchisor Employee
  • Overall Revenue per Franchisor Employee
  • Royalty Revenue per Franchisor Employee
  • Salaries as a Percentage of Overall Revenue
  • Ratio of Store Numbers to Franchisor Employees

There you have it — the ultimate list of high performance franchise KPIs. By the way, while most of these measures relate to financial and sales performance, Catherine Monson was particularly passionate about the KPIs related to franchisee satisfaction. And yes, while these are all connected, when a CEO is so passionate about this one, you know your culture is in good hands. In a future Tip I'll take up the question of what drives a healthy culture.

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