Franchisee profit is a principal focus in our work, whether with would- be franchisors contemplating franchising or established franchisors reviewing or improving an established franchise system.
Key here is that a franchisor needs to understand and help franchisees drive performance in a total sense; not just sales performance, but also profit performance – and profit in relation to their total investment.
The franchisor needs to know how the franchisee is going in a financial sense. The franchisee invests a lot and as an investment profile they will typically be highly concentrated into the specific franchise business. So it is important to the franchisee, who has made a decision to join the franchise system, that they are afforded a focus on how their return is developing over time.
We would also add that that focus needs to be considering how things are developing over time in relation to what objectives the franchisee had when they purchased the business, but also recognising that their objectives can evolve over time as they learn a lot more about the business and their local market. Clearly this means that the franchisor needs to know from the outset what franchisees wanted and their expectations. The franchisor needs to know what the franchisee invested at the outset and how that has evolved over time.
The franchisor also needs to know how performance is tracking in a total sense – encompassing income, expenditure, profit, cash flow and a balance sheet view. Without this focus, and some of the attendant points, a franchisor cannot have a real picture of franchisee profit and returns and therefore the effectiveness and total sustainability of the total franchise system.
A leadership focus on franchisee profit and returns will help drive franchisee performance which, in turn, will help create a great franchisor business (as a by-product) – and a long-term sustainable franchise system.
- Are franchisee profit and returns among your top franchise system KPIs and areas of focus?
- Do you maintain a focus on franchisee profit and returns with franchisees, as part of a regular business planning and review process?
About the Franchising Best Practice 500 Series
This is part of a series of franchising best practices. Franchize Consultants is sharing and publishing these best practices weekly for the betterment of franchising. We know that better knowledge and execution of franchising best practices leads to bigger and more valuable franchisor and franchisee businesses.
We have assembled the first 40 best practices into The Best Practice Handbook, which is available for purchase.