Monthly Archives

November 2015

Sell more franchises with these tips

By | Franchise Development

Most franchises want to grow. Some of our clients only want to open a few new locations next year. Others have been growing consistently by 20% every year. Some even have the great ambition of doubling in size next year. The whole franchise model is predicated on growth.

So what can you do to sell more franchises?

Follow these three tips:

  1. Improve unit-level economics
  2. Improve franchisee engagement
  3. Improve brand consistency

Easy, right? Hah – not so much. All three of these are long term initiatives to continuously improve performance. If you want easy: hire a great closer or give lavish commissions to franchise consultants and push your franchise onto anyone who can write you a check. However, that’s a horrible idea as it isn’t sustainable: your locations will close and you will fail.

Replicability AND sustainability are the keys of the franchise business model. Achieve those and you’ll be able to switch to a franchisee recruitment philosophy instead of a sales philosophy. Screen for culture fit and make decisions based on quality rather than quantity. Using this strategy will accelerate the virtuous cycle you put in place with continuous franchise improvement.



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Modern franchises focus on unit-level profitability

By | Franchise Operations, Franchising Trends

Are you profitable? We’ve been building franchise management software for almost a decade. We’ve worked with hundreds of franchise systems and have noticed a trend: best-in-class franchisors are putting more emphasis on continuous franchise improvement. By this we mean working hand-in-hand with their franchisees to improve their unit-level economics; not only their top level sales but also their bottom line. If you’re not doing this today, you will have trouble selling franchises in the future.

Common business knowledge tells us that you can’t improve what you don’t measure. Thus, franchisors need access to data to help their franchisees continuously improve. What data? Sales, cost of goods sold, labour, customer satisfaction scores, field audit scores, number of proposal sent out last month, territory information, etc. The basic premise to continuous franchise improvement is that you can take a snapshot of these key performance metrics in one unit and compare them to not only past results but also the franchise average (or any comparable segment of stores within the franchise). These comparisons give you tremendous insights into the nitty-gritty of your business, allowing you to iteratively address your weaknesses and continuously improve.

Although ingrained in the culture of newer franchise systems, many established franchise systems have never shared much data from the franchisee to the franchisor. “I charge royalties on sales, not profits”, they’ll claim. “The franchisor and the franchisee are distinct businesses”, they’ll argue. “If I get too involved, new and upcoming legislation will negatively impact us”, they’ll fear.

There’s a grain of truth in these elements, but the fact is that all these statements are ways to put your head in the sand, continue with the status quo and miss the profound change that is under way in the franchise world. Indeed, we’ve seen many concrete examples of franchises that have continuous franchise improvement at heart that are seeing tremendous year-over-year growth and are greatly surpassing the competition in their category.

Today, franchisors who work to improve individual unit-level profitability do more than what is expected of them. They also reap the benefits of their hard work as their system outperforms others and their franchisees are more engaged. In turn, this helps them sell more franchise units – a perfect example of a virtuous cycle. After a few years of small improvements which compound to have dramatic impacts, it will become obvious to prospective franchisees which franchise is the best fit for them.



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Franchisee Field Audits: Planning Pays Off

By | Field Audits

Field Audit Calendar Looking for a quick way to improve franchise performance? Read on!

After having discussed franchisee field audits with hundreds of franchise systems, we’ve noticed that about half of the systems schedule their field visits performed by their franchise business consultants. But what do we mean by scheduling? Most of these visits are unannounced, meaning the franchisees are not informed of the upcoming audit to ensure the audit scores are representative of the day-to-day performance. Therefore, scheduling should be taken in the broad sense of planning ahead of time, not necessarily specifying an exact day and time for a visit.

If no scheduling is in place, the franchise business consultant is reactive. They try to visit everyone in their territory on a best-effort basis, but spend most of their time with those who require more coaching (or simply those they enjoy spending time with). On a general basis, this is “good enough” but you’re trying to be exceptional, aren’t you?

The problem of being good enough is that the coach will sometimes end up not having the time to visit all the franchisees in a certain period, or will not visit the right franchisees at the right time to maximize their impact.

If you want to be exceptional, you need to be proactive instead of reactive. Aren’t you coaching your franchisees to spend time working on their business instead of in their business?

Fortunately, when it comes to planning your visits at least, switching from reactive to proactive does not require much effort. All you need is to be conscious of the situation and do a small push in the right direction. On a general basis, most franchises give their field coaches great flexibility over their schedules. Therefore, the regional director of operations (or whoever oversees the work of the franchise business consultants in the field) should work with the coaches to establish high-level goals and milestones for the next quarter based on the current priorities.

The most typical pattern we see is “you must visit every franchisee once in the quarter”. Take a step back and think if this is really your goal or if it is simply a minimum expectation. If you spend a bit of time thinking ahead, you may see that the next quarter includes the roll-out of an important limited-time-offer. Did you have a set of stores last year that didn’t properly execute the limited-time-offer (either the product or the marketing campaign). Sounds like these visits should be timed with the launch of your promotion and not six weeks into it.

The specifics vary per franchise, but it doesn’t take much time to align your visit schedule with strategic objectives. Planning ahead is a small tweak but properly leveraging your franchise business consultants can have a huge impact not only on operational compliance but also on franchise performance.

If you’re interested in continuous franchise performance, please check out our franchisee field audits app.

 

 



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Detecting Franchisee Fraud

By | Franchise Fraud

stop franchisee fraud Do you suspect that your franchisees are misrepresenting their sales in order to pay less royalties? Or are they ordering from unauthorized third parties to reduce costs? While more prevalent in some franchise systems (where they are indicators of a larger systemic problem), fraudulent franchisees can be found in any system. Here are a few ways you can leverage data to preparing yourself for “the talk” – or worse: legal action.

The core requirement: collecting data

The techniques suggested here rely on having access to information. If you don’t have any information, you’ll be flying blind. Data lets you paint a more accurate picture of the situation. Most of this information should come from the operational solution that your franchisees use on a daily basis. Here’s some of the information you should be collecting – they don’t apply to all franchise concepts, but having more is better:

  • Real-time sales data from the point of sale.
  • Cost of goods sold from the point of sale.
  • Purchase orders from all the primary suppliers
  • Quotes from your customer relationship management tool
  • Schedules from your scheduling calendar

The core technique: benchmarking ratios

Noticing that a franchisee’s sales are substantially lower than your expectations doesn’t get you very far. All you have is a hunch. To validate that fraud is actually occurring, you need to compare two data points. Why? If you want to reduce royalties, it is easy to simply misrepresent top-level sales. Franchisees can “forget” a few transactions paid in cash or entered in a separate system.

What is much harder is to fudge two different indicators that are heavily correlated.

Restaurants

Benchmark the Purchases/Sales ratio across the system. When two locations have comparable sales but one buys much more raw product that the other, it means either they are highly inefficient, that there is some kind of theft going on (by the franchisee or by the employees) or they are purchasing goods from an unauthorized supplier. Instead of looking at the top level ratio, savvy franchisors drill-down to the specifics such as “Chicken purchases” / “Sales of all items containing chicken”. By looking at the ratios for certain proteins, they get a better idea of the store’s behaviour.

Retail

Retail systems allow you to track specifics on an item-per-item basis. For each item, you can compute the percentage of missing items as a (Purchased – Sold – In Stock)/Purchased. These items have either been stolen by customers or sold via some external system. By benchmarking ratios against a large number of locations, you’re able to pinpoint the most probably root cause.

Service franchises

In the service industry, one often cannot use the above ratios because no physical items are transferred between the franchisee and the customer. In these cases, two other ratios can prove helpful. First, the percentage of quotes accepted can be benchmarked across the system. Second, the percentage of time the franchisee (or one of their employees) is busy is also a good indicator. In both of these cases, low rates indicate a poorly performing franchisee and not necessarily a fraudulent one. However, if you drill-down to the root causes you’ll be able to determine if lost jobs (or jobs from other sources) are actually being secretly performed.

The silver-lining: improving performance

What’s interesting is that having access to this information and being able to benchmark these ratios across all locations can serve a broader purpose than just identifying fraud: it is a great way to improve performance across the system. The exact same indicators let you drill down into a unit’s weaknesses, giving you insights on what they need to do to improve.



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