Most franchisors come to learn that they don’t make money from selling franchises. After selling and training costs are deducted from the initial franchise fee, there is often little left over. What franchisors learn is the path to lasting wealth in franchising is paved with the steady flow of recurring royalties.
There are so few “homerun” franchisees. These franchisees come to you fully prepared to handle a business’s operations, sales, marketing, and financial aspects. I tell my clients that franchising is like a bell curve. There is a great portion and a poor portion, but most are somewhere in between.
To develop a lucrative flow of royalties, the key is to develop more high quality franchisees. To do this, a franchisee must have a robust coaching program.
Coaching Doesn’t Rely on Luck
The best athletic teams in sports have two things in common – they know what kind of people fit their system and they know how to coach them.
I could write an entire other article on franchisees knowing who their “z” is. Anyone who is in franchising has probably heard a version of that saying at some point. But once you have your “z”, a franchisor must know how to coach them.
Having a strong coaching program enables franchisors to develop strong owners in their system rather than relying on luck to achieve success. A strong coaching system can develop owners into high performers. The alternative is hoping that a concept only attracts prospects capable of performing at a high level.
The Nuts and Bolts Behind Coaching
Coaching is not something that can be done haphazardly. In too many cases, I work with franchise concepts as a CFO and learn their coaching is done ad hoc. When I ask franchisors about metrics they use to coach or what concepts they implement, they can’t name them.
Rather, in many cases, franchisors treat coaching sessions akin to therapy. “Tell me what is wrong”. “How can I help?”. There are no defined objectives to coaching, much less a system or process they are working through.
Coaching systems must have definition, objectives, and measurables to be successful. Franchisors should overthink any of these points. Definition is merely having an outline of what objectives will be accomplished and the steps to do so. Objectives are merely what is trying to be achieved. As a fractional CFO, measurables are where I come in. Once objectives are established, we can define and track measurables to see our progress.
Coaching Measurables Tactic #1 – Define
Most measurables franchisors want to track have to do with revenue. Inherently, tracking revenue makes sense for the franchisor. After all, that is how they make their money.
I won’t debate the value in revenue metrics. Creating revenue is one of the most essential traits of any business. For franchisors, they must track what is driving that revenue. Is it customers served? Close ratio? Customers contacted? Average ticket price?
There are probably two or three inputs that are important to track. These inputs should be something that the franchisee can control, and that coaching can influence.
What most franchisors don’t spend much time coaching on is cost controls. Most businesses close because they run out of money. While coaching programs often don’t have time to teach the inner workings of a cash flow system, they can teach cost controls. Most franchisors know what labor costs should be. Most also know how much should be spent on marketing (or the return on marketing expense). It is crucial for franchisors also to track two or three cost metrics that can help owners make more money.
Coaching Measurables Tactic #2 – Gather
When I start working with franchisors as an outsourced CFO, I typically ask for all the data they have. Most franchisors don’t have very good data for their franchisees. If they do, they have archaic ways of collecting it. These methods often are very labor-intensive and can lead to errors.
To coach, franchisors must have a way to collect and analyze data. This could come in the way of a very simple Google Form or setting up a system through tools like AirTable.
With this data, franchisors can execute several tactics to help drive growth throughout the system. Procedures like benchmarking individual locations or finding franchisees excelling and learning from them become possible.
Coaching Measurable Tactic #3 – Share
The power of peer pressure can be tremendous. In many cases, it can lead to negative consequences. However, when it comes to coaching franchisees, it can lead to growth.
I was recently presenting at a convention for one of my franchise clients. I presented a statistic that the average franchisee was putting out 27 monthly estimates to potential clients. This data point had remained relatively steady for several months. However, I also knew the statistic was misleading. While 27 was average, only 30% of franchisees were achieving the average or above it. A few very well-run franchisees drove the data.
However, in the 3 months after presenting this, the number of estimates went up by 5-10% each month. Not only that but by the end of those three months, over 40% were achieving the average. This meant the frontrunners were not driving the growth – rather the franchisees at the bottom were putting out more estimates.
When franchisors share data, it can lead to some good results. However, this data can only be used if it is collected.
Coaching Measurables Tactic #4 – Coach
To outsourced CFOs like myself, data tells a story. Once you know that story, you can start to use it to help coach.
One of my clients measures their franchisee’s close ratio. They learned that their top third of franchisees closed on their proposals 30% of the time. This franchisor worked with these clients to understand every part of their sales process.
While the franchisor had put processes in place such as proposal templates and specified ideal client profiles, they wanted to learn the specific methods leading to such success. They learned from their franchisees certain marketing tactics and follow-up methods.
Once they learned what was possible, they were armed with coaching tactics they could use with their other franchisees. The value provided was tremendous, and will eventually end up growing their royalties received.
CFOs Role in Coaching
The CFO plays a pivotal role in coaching programs implemented by franchisors. Their expertise in financial management and data analysis is vital for driving the effectiveness of these programs. The CFO’s responsibilities include data analysis to identify financial trends, measuring progress through key performance indicators, and providing guidance on financial strategies, cost control, and revenue growth.
The CFO also plays a problem-solving role, offering insights and guidance when financial challenges arise. They ensure franchisees have access to accurate financial reports and can help tailor coaching tactics based on financial data, making the coaching sessions more effective. Ultimately, the CFO’s financial acumen and analytical skills contribute to the development of high-quality franchisees, leading to increased royalties and the overall success of the franchise system.
Krieger Analytics
Krieger Analytics has several franchisors who rely on them as their outsourced CFO. These franchisors range from just a few units to more than 200. We are an expert in franchising because we have been a franchisor. Our expertise doesn’t just come from theory, it comes from practice.
If you would like to learn what a CFO can do for your franchising company, contact us now. We’d love to see if we are a good fit and can help you accomplish your goals.