Monitoring Comparable Sales – Best Practice #55
Franchisors will typically closely monitor total systemwide sales as, for most, their primary income source (that is, a royalty based on sales) depends upon it. A less frequently measured and monitored, but equally important, key performance indicator, is comparable sales.
While total systemwide sales reflects all sales to customers (by franchised and company units), comparable sales reflects only sales by those units that meet certain criteria. In particular, comparable sales refers to those sales by those units that were both established (i.e., typically with at least 12 months trading) and still open during the entire time period. Comparable sales thus exclude sales associated with units that were/are very new as well as units that might have closed during the timeframe in question.
Measuring and monitoring comparable sales is very important because it indicates the effectiveness of established units, thereby controlling for new unit openings and/or closures. Thus, increasing comparable sales is a sign of business effectiveness. Meanwhile, decreasing comparable sales is a sign of weakness, and may be an important warning signal.
Importantly, without monitoring comparable sales, a company might wrongly assume (due to growing new store openings) that sales per unit are increasing. Thus, many companies, and investment analysts, centre in on “comp” sales – as a critical KPI.
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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.