As an entrepreneur, you are probably aware that gut feeling counts for something in business. Often, being open to what your intuition is telling you can be an advantage. Decisions made from the gut have produced many business successes. However, decisions without data is not a sustainable formula for success.
There is a difference between blindly trusting your gut and backing up your intuitive decisions with data. How will you know, for instance, that purchasing that new piece of equipment was a profitable decision in the long-term? Tracking data is the only way to verify that your decisions are paying off and that your on track to meet goals.
Key performance indicators, or KPIs, are a powerful data tool that franchisors should utilize to monitor their franchises. According to the survey from the International Franchise Association, tracking KPIs is strongly correlated with better franchise performance. In this article, we will explain what KPIs are, and discuss in more detail specific KPIs that you should be coaching your franchisees with.
What are KPIs?
Put simply, KPIs are bite-sized data points that measure how well your business is performing. They work as guidelines to ensure that you are meeting your goals.
KPIs aren’t just another form of number crunching, either. They are designed to cut through the noise and distill the most important data points into actionable metrics. They are a kind of combination, both a summary of your performance and a roadmap for future decisions.
4 key KPIs that your franchisees should be tracking
A Google search for KPIs will produce thousands of results. Here are 4 of the most important ones that you and your franchisees should be tracking:
Gross sales trends.
Gross sales are the total revenue a business generates from transactions in a certain period. They are different from other KPIs that measure revenue after adjustments have been made for sales discounts or returns.
Gross sales are the baseline measure for how well a franchise is performing, and you should use them to rank your franchises. Be aware, however, that gross sales are most revealing when analyzed in combination with other KPIs.
Gross sales are most impactful when measuring in trends. For instance, what is the trend of sales over the past 6 months? Did the location grow year over year? Putting data together like this will provide you the most benefit when analyzing your franchisees.
Profit after controllables.
Many things affect the performance of a franchise, and some of those things aren’t under your control. Think of controllables as things such as rent, merchant fees, and royalties.
Profit after controllables represents how the factors you do control are affecting revenue. This KPI should be used to set apart the spending decisions you and your franchisees have made from uncontrollable expenses. That way, decision making can be analyzed for profitability.
Net Promoter Score (NPS).
NPS, in short, measures customer satisfaction. It is calculated using a formula that takes into account how likely customers are to refer your business to their friends and how loyal customers are to your brand.
Every business owner wants to know that customers are being satisfied. But ratings from individual customers don’t paint the whole picture. NPS summarizes overall customer satisfaction with your franchises.
Growth rate.
Franchisors are understandably eager to drive growth, and much of the franchising strategy is built upon doing so. How will you know that your growth strategies are working, though, without analyzing data?
The growth rate KPI is a comparison of different sales periods, and it reveals whether your business is growing and at what rate.
Implementing a coaching strategy
So, you know that managing your franchises without analyzing KPIs is like flying blind, and you want to coach your franchisees on taking data seriously. It can be difficult to provide guidance without having a deep understanding of KPIs yourself, however.
Consider hiring an accounting professional to support you in this process. A CFO or virtual CFO is a financial expert who has experience analyzing and tracking KPIs, and will help set up a coaching strategy for you and your franchisees. Even a short consultation with a professional accountant will mean an established and easy to follow data strategy for your business.
How Krieger Analytics can help
Krieger Analytics specializes in outsourcing accounting services for small businesses, from bookkeeping to virtual CFO consultations, and our background in entrapuernship and finance means we know what running a business entails. Our goal is to meet your small business accounting needs without burdening you with the costs of a full-time accounting staff. And, we understand your position as a franchisor, because we have experience running franchising businesses ourselves.
Have questions about anything discussed in this article, or interested in what valuable insights a CFO and former franchisor has for your business? Conversations are free, so don’t hesitate to reach out at [email protected], and let us explain how our services could be the right fit for you.