Unless you’ve spent the past year under a rock, you know that every business sector has experienced uncertainty this year — and that includes franchising. As we approach 2021, no one really knows what to expect from the upcoming year. What will revenues look like? Will franchise units return to full operations, or will they continue to operate at a reduced capacity? How will consumer buying habits evolve along with the pandemic and the economy?
Without knowing the answers to these questions, your franchisees may avoid budgeting and planning, for the simple reason that they can’t plan for the future when they don’t know what the future holds.
But that’s only part of the problem. A study by Bain & Company revealed that in many organizations, individuals aren’t clear on company goals. In the study, only 15 percent of those surveyed could name even one of the top three company goals, and 81 percent said that they are not held accountable for progress on the organization’s goals. To encourage your franchisees to budget and plan, they must understand the goals for their location and the brand overall, as well as feel compelled to meet those benchmarks.
With all that in mind, how can you encourage franchisees to hold themselves accountable for next year’s performance and engage in proactive budgeting and planning? Start with these four building blocks.
1. Build a Better Budget Template
Many franchisors have a budget template that they provide to franchisees at the end of the year. But if it’s not intuitive and user-friendly, it’s going to be a challenge to get franchisees to actually use it. At a high level, your budget template should be easy to use, hard to break, and adaptable for any franchisee — whether he or she just opened a location or has a mature unit that’s been established for many years.
Also focus on building in logic, which can make the template easier to manipulate. For example, any fixed costs should be input as set dollar amounts, while variable costs should be input as set percentages. This way, if a franchisee changes another variable (e.g., “What would my budget look like if sales were X?”), the template automatically recalculates the correct fixed and variable costs.
Without that built-in logic, the franchisee will have to go back and change nearly every variable — which not only discourages use of the template, but opens it up to errors and miscalculations.
2. Challenge the Traditional Way of Thinking
While budgeting templates are necessary and useful tools, you also need to engage your franchisees in candid conversations about the future and how they can be successful. That requires taking a deeper look at factors like your main sales drivers.
Take a home health services franchise, for example. Your franchisee may have identified the main sales drivers as number of customers, their purchase frequency, and the value of each transaction. However, if you take a closer look at each of those sales drivers, it may become clear that the common thread between all three factors is service capacity. It doesn’t matter how many customers you have or calls you make if you don’t have the staff to provide the care.
Ultimately, this conversation could reveal that the franchisee needs to focus on recruiting and staffing in order to successfully drive sales. This discussion will likely look different for every franchise — but it’s a critical conversation to have with your franchisees to get them to think differently about what they need to do to be successful.
3. Pinpoint the Right KPIs
They say that what gets measured gets improved. Part of holding your franchisees accountable for both location- and brand-specific goals is pinpointing the right key performance indicators (KPIs) to measure.
Rather than thinking in terms of standard budgeting KPIs, like sales, gross profit, and net profit, you need to consider the drivers of success for your particular franchise. More accurate KPIs could be number of customers/transactions, average transaction value, revenue per employee, or something specific to your franchise concept, like recruitment activities, marketing/customer acquisition costs, leads, or conversions.
The conversations mentioned above — those that push your franchisees to think differently about planning and budgeting — can help them pinpoint the right KPIs to measure their success.
4. Inspect What You Expect
Unfortunately, not all franchisees will comply with your request to plan for the future and complete a budget template. That’s why accountability is so important. If you expect your franchisees to do things like prepare a budget for the upcoming year, pinpoint sales drivers, and identify relevant KPIs, you must follow up and ensure that they actually did those things. You must be able to monitor their planning progress and implementation — and most importantly, you must do it in a way that’s scalable, so you can apply it to all franchise locations.
With these tips, you can encourage your franchisees to budget, plan, and take accountability for the success of their individual locations and the overall franchise brand. For a deeper dive into franchisee budgeting and planning, download “The Franchise Budgeting Playbook: Your Roadmap to Unit-Level Profitability.” Use this guide to give your franchisees everything they need to plan, build, and monitor their budgets.