Modern franchises focus on unit-level profitability

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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