What's Your Number?

Written on the 20 June 2012 by Mark Fernandez, Business Development Alliance

Potential Franchisees and KPI’s

Key performance indicators (KPI’s) are simply the predetermined elements of a business which are regarded as the indicators of whether the business is performing satisfactorily or not.

In the franchise environment this issue can have two sides to it.

Firstly - what are the KPI’s set by the Franchisor and what do these mean to Franchisees?

Secondly - potential Franchisee and their advisors should set some KPI’s that they will look for which should reveal whether the Franchisor is a good Franchisor and whether the system is working well and suites them as an individual.

The KPI’s of a franchise system are usually subjectively set by the Franchisor based on their experience, the industry they operate in and their franchise system, therefore it is not possible to provide a definitive list of what they should be. In theory, they are the essential elements of the Franchisee’s business which they must perform, to the set standard, if the Franchisee, Franchisor and the system as a whole are to succeed.

Franchisor’s must be careful not to create a “representation” as to performance, turnover, income, etc, if setting minimum performance KPI’s.

Traditionally KPI’s were items you could measure and graph, and mostly financial criteria, but in a more tech savvy world in which we now live in need to cover more critical parts of the business and nit just turnover. With data readily available, there is a need to keep pushing the envelope in customer service to stand out from the pack and KPIs have also become more subjective. This means training those who check KPI’s to do so, to the same subjective standard as those who created them are now become more and more critical.

In franchising the dividing line between KPI’s and other elements of compliance sometimes gets blurred as to what is a key element of the franchise outlet and what is a requirement to follow in the manuals and agreements. Potential Franchisees have to understand that what they may regard as non essential to a successful franchise outlet is in fact essential to the system or perhaps more significantly, the Brand, which is all important to all franchise systems.

Franchisors KPI’s for Franchisees are often overlooked by potential franchisees when they are considering buying a franchise. This can be a fatal flaw in the decision making process. Potential Franchisees are often caught up in “having my own business”, “how much money will I make” or simply being part of what they believe is a “failsafe system”.

All potential Franchisees must ascertain what the KPI’s they must achieve are. These, and the way they are dealt with, are perhaps the clearest vision of the culture of the Franchisor and the system. If a franchisee has picked a system with a culture they don’t, or can’t, fit in with, the situation can become financially and emotionally disastrous.

Just a few examples of the types of Franchisor KPI’s are:

• the percentage the cost of goods represent to turnover,
• the percentage wages represent to turnover,
• the minimum number of customers or calls each week,
• the minimum amounts of goods to be purchased,
• the minimum expectations for local area marketing methods,
• promotions in the local area,
• staff requirements
• and many more...

There may be requirements relating to signage, uniforms, cleanliness, telephone scripts, weekly cleaning of the car or van.

The KPI’s will, quite rightly, be a non negotiable aspect of the system and potential Franchisees must not only ask themselves “can I live with these requirements” but also “how does the Franchisor help me achieve these and how does he manage them?”

The relationships involved in franchising are probably the most important part of a successful, long term, franchise operation both as a Franchisee and Franchisor. This relationship is governed by the culture and the culture is reflected in the Franchisors expectations and how they are supported and managed.

Leaving aside the issue of recruitment, the first step on this journey is comprehensive initial training in all aspects of the system including the operations manual. The second is support given at opening or commencement time, the third should be ongoing support by a franchise business manger and finally management through compliance.

Potential Franchisees should gain a full understanding of how the Franchisor deals with each of these elements.

Be clear on both yours and the Franchisors KPI’s. Take appropriate advice before you commit and keep communicating with the Franchisor throughout what can be a wonderful journey if you both get it right.

Mark Fernandez
Director
Business Development Alliance
www.bda-online.com.au
mark@bda-online.com.au