Aug 26, 2021

How to Use KPIs as a Tool for Franchise Business Planning

Written by FranConnect

Key performance indicators (KPIs) are tightly integrated with franchise business planning because business plans contain key results (KRs). KPIs are a subset of these key KRs, which the franchise uses to measure its performance.

It may seem a bit like alphabet soup but knowing these acronyms and how they fit into your business plan is key to growing your franchise.

Naturally, the KRs and KPIs that a franchisor uses are tightly related to their vertical. A restaurant business, for example, will look at food and labor costs as key drivers for the business. Other verticals focus less on controllable costs, as they are not as impactful as simply increasing top-line sales. For example, in environments such as commercial printing, the focus shifts to KPIs that drive the sales team, such as number of calls made, quotes submitted, or quote conversion ratios.

In any type of franchise, you can define important KPIs to watch. Typically, you should identify 12 to 15 metrics at most to avoid flooding the franchisee with information. When you develop a business plan, you may bring back a subset of these same indicators based on your focus areas, but you’ll normally dive deeper in your weaknesses.

The business planning cycle gives you the opportunity to take a step back and observe an area where you want to focus. Your base KR will be based on the KPI you’re already tracking in your scorecard, but you’ll develop ideas to augment it with other KRs that will measure the impact of your proposed initiatives. Here’s an example:

Example KR for Restaurants: Check Size


Imagine you are building a business plan for a restaurant franchisee. Restaurants typically look at average check size as a scorecard metric. You look at their scorecard and observe the average check size is their biggest weakness.

One goal KR would be to increase the average check size to the same level as the average franchisee. That is a great idea, but it is not actionable if that check size has been stagnant for a while. Instead, this presents a good opportunity to think through some potential root issues. This is best done as a brainstorm with the franchisee.

In this case, imagine that you theorized the following potential root issues:

  1. Staff is not upselling enough, and they need training.
  2. A large portion of your morning customers purchase only a coffee and then leave.
  3. Your night staff offers too many discounts.
  4. You increased prices last year as recommended by the brand because a cheaper competitor set up shop next door.

After the brainstorm, you and the franchisee can pick one or two of these issues to tackle. So, your business plan could include the following KRs and initiatives:

100% of the staff retakes the upselling training course before the end of June.

  • Related initiatives include: Setting up a training day, having 90% of the crew complete the training, etc.

An average of 10 people per day buy a locally sourced energy bar before 11 a.m. this quarter.

  • Related initiatives include: Stocking enough energy bars, ensuring every customer is offered one, and include the energy bar push in the upsell training (yes, one initiative can affect multiple KRs).

Increase the price of 10 of the 20 top-selling items by 3% before the end of July.

  • Related initiatives include: Review competitor prices to find the easiest price increase opportunities, change menu boards, etc.

As you can see, these key results are very specifically related to your brainstormed theories about why check size is low and what you can do to increase it.

Measurement


You need to be sure you can easily measure these KRs from the line of business application that generates them, as it will not be convenient to access them as metrics from the scorecard.

A major advantage of this approach is that when you do your post-mortem at the end of the period, you can go back and see if you achieved your main objective: increasing the average check size. At the same time, you can review each of your theories that you had outlined to drive that growth. The value of franchising is in the network effect. If you find something that works for one franchisee, it can also be applied to others in the system.

If you did the upselling training and no one is buying additional elements, then either you’re not executing properly or training was not the right idea. In response, you’ll need to find new theories to test during the next period.

Overall, KPIs and business planning are tightly integrated. The best way to help your franchisees reach their goals is to measure performance along the way.

Learn more about FranConnect’s leading performance tools that can help you track the KPIs that matter most and make a positive difference in your business.

About the author

FranConnect

FranConnect is the leading franchise management software provider. Based on an analytics approach, only its award-winning, unified FranConnect platform engages stakeholders to grow, scale and optimize franchise systems through a connected and complete view of the business from sales to multi-unit and multi-brand performance. Over 800 brands — including 40 of the Entrepreneur’s Top 100 Global Franchises — in 18 countries count on FranConnect to successfully grow their franchise systems. FranConnect customers span all sizes, growth phases, and industries and have grown 44% faster than the broader franchising market. Backed by private-equity investor Serent Capital, FranConnect is headquartered in Herndon, Virginia, with global follow-the-sun operations.

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