You Shouldn't Be Guessing

There are many factors to consider when it comes to evaluating and operating a franchise business. Some of the benefits of franchising include brand recognition, marketing, training and support.

One particular area that doesn’t always get a lot of attention is the concept of “metrics”.

Metrics are defined as a quantifiable measurements used to assess performance. The best franchise models have a clear understanding of what metrics are most important in their business and industry. They will also provide the tools and training so their owners can regularly measure performance and make necessary adjustments over the course of daily operations. This helps save the owner both time and energy so they don’t need to “guess” what areas need their attention.

There are many types of business metrics. Some include:

• Cost Per Lead
• Life Time Value of a Customer
• Conversion Ratio
• Labor Cost
• Inventory Cost

This is just a small sample, and what’s important to understand is some are more important than others depending on the industry. A food based franchise model will likely focus on measuring food, inventory and labor costs. A fitness model will likely be interested in things like cost per lead, sales per lead and the lifetime value of the customer. Regardless of the industry, if you’re operating or even evaluating a potential franchise model, make sure to ask detailed questions on what metrics are important and what tools are made available to help you run the business. Know your vital metrics, track them regularly and make adjustments quickly.

Let’s consider the following example.

Let’s say your business gets 40 leads, yet only 5% convert to a sale (conversion ration). If the industry average is 25%, the owner will quickly learn there is a problem. Before making any assumptions the problem could lie in two areas.

It could be a sales or customer service problem thus requiring further investment in sales training and or sales management. It could also be a marketing problem whereby your advertising is driving the wrong type of customer to the business. In either case, we know where the problem lies and thus the owner can spend their efforts making the necessary changes to improve the performance. This saves time, money and can even address stress and anxiety that comes with uncertainty.

If you’re researching different franchise options, or currently operating a business that’s not performing well, you may want to take a deeper look into the metrics. Not having a baseline to measure will result in greater anxiety, stress and higher risk. Knowing your targets and having the proper tools to measure will go a long way towards future success.

Todd Weiss, CFA
The Franchise Consulting Company
todd@thefranchiseconsultingcompany.com
866 934 7167