“So, how’s business?”
I was interviewing a franchise owner prior to my keynote for his brand and inquired about how things were going.
“Well, you know how they say most new businesses close within the first year? It’s been 18 months and we’re still here!”
He had no idea how he was doing. He looked at prolonged existence as success without actually knowing if he was growing, making money, or heading towards bankruptcy. He told me how “busy” he was, but couldn’t provide any meaningful data about how his franchise was performing.
The only way to measure your business accurately is to look at the numbers. They don’t lie. And if you know which numbers to watch, you’ll more quickly identify problems and opportunities so you can take the right action. It doesn’t have to be complicated. You don’t have to be an accountant. With decent bookkeeping software and good data entry habits, you can easily access the information you need to track and improve business performance. Here are the most important metrics to watch and what they tell you:
Gross Sales
This is the amount of revenue that comes in over a specified time period. Changes in gross sales reveal how your business is performing in the marketplace. An increase means you’re growing and a decrease means your shrinking. Your franchisor probably ranks franchise locations based on this number. It’s important to remember that an increase in gross sales doesn’t necessarily mean you’re increasing profit, especially if costs are also increasing.
Growth Rate
This tells you how well your business is growing by comparing gross sales during two specified time periods, usually the most recent year to the previous year. It can be calculated as (This Year – Last Year) ➗ Last Year. It’s good to ask your franchisor about the growth rate of other locations to get context for your performance.
Expenses
This is a large category that includes what you spend on goods, rent, labor and other major areas of the business. Some of these are fixed costs and others vary based on what’s required to fill orders. Monitor all expenses on a regular basis. Look for slow leaks that go easily unnoticed. If your combined expenses are too high, no other metrics matter. When expenses exceed revenue, you’re losing money. And because you probably pay a percentage of gross sales as a royalty to your franchisor, a dollar saved on expenses is worth more than a dollar of revenue because the whole dollar goes in your pocket. Always look for ways to save.
Profit Margin
This is the percentage of gross sales you still have after paying expenses, calculated as (Gross Sales – Expenses) ➗ Gross Sales. This metric tells you how well you derive profit relative to how much business you’re doing. It’s good to know what the average profit margin is in your brand and in your industry so you know where you stand relative to what’s expected.
Ranking
This is the measurement of your gross sales compared to other franchisees in your system. While it probably doesn’t tell you who’s most profitable, it does give you a snapshot of how you’re doing compared to what’s possible within your brand.
Customer Count
This is the number of transactions you complete over a specified time period. An increase in new customers suggests your marketing is working. An increase in repeat customers suggests both your marketing and customer service are strong. Find ways to bring new customers in and current customers back.
Average Ticket
This is the average amount customers spend per transaction. It’s a good indicator of how well you’re selling. Increasing this number along with customer count will boost most of the other metrics (and make you more money!). Look for ways – even small, incremental ways – to boost this.
Customer Satisfaction
This can only be calculated if the data is collected (often through third parties). You’ve probably been asked many times by a business to rank from 0-10 “How likely is it that you would recommend [business] to a friend or colleague?” Your response is used to calculate the business’ “Net Promoter Score.” Other measurements exist, as well. You can also look at online reviews, both the ratings and the comments. Use this information to see what you need to do more of, less of, and/or change.
Charity $ Raised/Given
This is the amount of money your business donates to community causes. While not a direct indicator of business performance, working to increase it can make direct positive impact on your business as well as your quality of life. It widens your perspective and makes a positive impression on employees and customers. Work each year to offer more money and, if possible, more time to your community. It’s a better way to live and it’s also good for business.
If you’re a number cruncher, there are plenty of other metrics to watch. Start with these. Remember, if you’re not watching the numbers, you’re not watching your business. Set small goals for improvement in every area. Never forget that data is less about what you’ve done already and more about what you need to do now.
I’m here to help! Feel free to reach out to me with any questions or requests for advice. I’m also happy to schedule a complementary coaching session with you.
I’m excited to announce the release of my new book entitled The Wealthy Franchisee: Game-Changing Steps to Becoming a Thriving Franchise Superstar published by Entrepreneur Magazine.
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