How Key Performance Indicators (KPIs) Work with Business Plans

Franchise KPIs and Business Plans

Business plans contain Key Results (KR).  A subset of these key KRs are the Key Performance Indicators (KPIs) used by the franchise to measure its performance. It may seem a bit like “alphabet soup”, but knowing these acronyms is key to growing your franchisee. Naturally, KRs and KPIs used by a franchisor are very tightly related to their vertical.

If you are looking at a restaurant business, they will be looking at food costs and labor costs as the key drivers for the business. Other verticals focus less on controllable costs, as they are not as impactful as simply increasing top-line sales. In environments such as commercial printing, for example, the focus shifts to KPIs which drive the sales team such as number of calls made, quotes submitted or quote conversion ratios.

Similar to the detailed discussion in FranchiseBlast’s Scorecard e-book, we can define KPIs that are always important to watch. There are normally 12-15 of them at most, to avoid flooding the franchisee with information.  What is different with business plans is that based on your focus areas, you may bring back a subset of these same indicators, but you’ll normally dive deeper in your weaknesses.

The business planning cycle gives you the opportunity to take a step back and observe an area where you want to focus. Your base KR will be around the KPI you’re already tracking in your scorecard, but you’ll develop ideas around this which will augment this KR with other KR which will measure the impact of Initiatives you will be doing.

Example KRs for Restaurants: Check Size

Restaurants typically look at average check size as a metric in the scorecards. Imagine you are building a Business Plan for a franchisee. You look at their scorecard and observe the average check size is their biggest weakness.

One KR would be to increase the average check size to the same level as the average franchisee.  That is a great idea, but it is not actionable if that number has not been moving in a while. So it is a good opportunity to think through some potential root issues. This is best done as a brainstorm together with the franchisee.

In this case, imagine that together you came up with the following ideas:

  1. Staff is not upselling enough, and they need training.
  2. A larger proportion of your morning customers pick up only a coffee and then leave.
  3. Your night staff offers too many discounts.
  4. You increase prices as recommended by the brand last year because a cheaper competitor set up shop next door.

After the brainstorm, you and the franchisee can pick one or two of these to tackle at the same time. So, your business plan could have the following KRs and Initiatives:

  • 100% of the staff redoes the upselling training course before the end of June
    • Related initiatives include: Setting up a training day, having 90% of the crew completing the training, etc.
  • An average of 10 people per day buy a locally-sourced energy bar before 11 am this quarter.
    • Related initiatives include: Stocking enough energy bars, ensuring every customer is offered one, and maybe the energy bars could be included in the above training on upselling, etc. (yes… one initiative can affect multiple KRs).
  • Increase the price of 10 of the 20 top-selling items by 3% before the end of July.
    • Related initiatives include: Review competitor prices to find the easiest price increase opportunities, change menu boards, etc.

As you can see, these key results are very specifically related to your theories about what you think you can do to drive up the average check size.

Measurement

You need to be sure you can easily measure these KR from the line of business application which generates them, as they will not be as convenient to access as the metrics from the scorecard.

A major advantage of this approach is that when you do your post-mortem at the end of the period, you can go back and see if you achieved your main objective –  Increased the average check size. At the same time, you can review each of your theories that you had outlined to drive that growth. The value of franchising is in the network effect. If you find something that works for one franchisee, it can also be applied to others in the system.

If you did the upselling training and no one is buying additional elements, then either you’re not executing properly or training was not the right idea.  In the next period, you’ll want to find new theories to try.

Last Word

Overall, KPIs and business planning are tightly integrated. Throughout the process, it is good to be a guide for your franchisee as they navigate business planning.



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