For the most part, franchise performance is the same as business performance in general. A good business will have to focus on a few simple things in order to ensure that it is growing & profitable:
- Consistently generating leads & enquiries
- Consistently nurturing leads & enquiries into customers
- Consistently making sales
- Consistently identifying where to maximise profits
- Consistently turning sales into increased business
- Consistently improving throughput (or the efficiency by which the business can handle larger flows of customers)
There are a number of elements that are allied with this such as:
- The performance of staff (both in terms of productivity & discipline)
- The use of time
- Quality & speed of service delivery
- Performance of individual marketing initiatives
There are a large number of KPIs that can help ensure successful franchising. We include a list for you to choose from. In reality, your franchise business might only require your focus on a subset of these KPIs or you may choose some others depending upon what’s relevant to you.
As your business grows & develops, it will make sense to pay particular attention to different things. If you pay attention to everything, you’re not really paying attention to anything & so it makes sense to focus on a key set of KPIs on a weekly or monthly basis (perhaps somewhere between 5 & 15) which are most important. If any of these are off target, you can then delve more deeply into them & further interrogate the data & others in order to determine what makes sense.
Leading & Lagging Indicators
One thing that you might want to consider when determining franchise success is how your KPIs can inform your future action.
Many of the metrics that can be pulled from your accounting system are typically lagging indicators: they show you what has happened in the rear view mirror and don’t give you a sense of what might happen. To create a useful, actionable set of KPIs, it is worth including some leading indicators into this mix to help you better forecast what is going to happen to your business.
Leading indicators help you determine whether the right activity is happening in order to generate the right outcomes in the future. For example, if you haven’t started a marketing campaign then you will probably not expect an increase in business to follow.
A leading indicator for sales and marketing might include the number of enquiries that have been generated by that campaign. Although these inquiries may not turn into business they are a sign that you have enough opportunities flowing into the business in order to generate the sales in the future. In fact, if you know how well your business converts inquiries into sales, you may well be able to predict the value that you expect to come to the business.
Staying within sales and marketing, another leading indicator might be the number of clicks that an online advert is getting. This indicator will lead the number of enquiries and give you a vantage point that will enable you to peer further into the future and correct course earlier.
If you are not getting the right number of clicks on your ad, you won’t get the right number of enquiries and that won’t be followed by the right number of sales.
It might take time to work out what that right number of clicks might be and this could be more information than you require but it is an example of how leading indicators can give a sense of what might follow and help you to make judgments earlier .
Some of the most important general KPIs for franchises
The best KPIs for franchise performance often depend on the specific industry and the goals of the franchise, but here’s a list of common ones:
- Sales Revenue: Measure the total sales revenue to understand the growth and profitability of the franchise. It’s one of the simplest metrics but it gives you a sense of what your business is doing over time
- Same-Store Sales Growth: This measures the change in sales for existing outlets over a specific period, allowing for a comparison of performance year-on-year
- Cost of Goods Sold (COGS): Knowing the cost of producing the goods or services will give an understanding of gross margins
- Customer Satisfaction: Conduct regular surveys to gauge franchisee contentment, as their satisfaction often correlates with franchise success. This could be as simple as logging the number and rating of online reviews you are getting
- Customer Satisfaction and Net Promoter Score (NPS): This gives insights into how likely customers are to recommend the franchise to others.
- Average Transaction Value: Measures the average amount spent by customers per transaction. This can help you to understand how much a customer is worth to you, to consider how & where you might increase their spend & to determine how much you might be prepared to spend in order to get a new customer
- Customer Retention Rate: It’s often more cost-effective to retain existing customers than acquire new ones. This KPI can indicate the quality of service and product. In addition, it can help you plan for the future as, if you want to grow by 50% next year but you’ll lose 10% of your customers, you’ll need to ensure you grow enough to overcome the lost customers. In addition, this metric can help you to determine whether there’s anything else you can do in order to retain customers
- Gross and Net Profit Margin: Indicate the profitability of the franchise after accounting for all expenses. This can help you to determine where you make the most profit & to see which parts of your business are costing the most in order for you to generate any profit
- Number of leads or enquiries: this shows how many prospects are coming into the business
- Local Marketing ROI: If you’re running local promotions or advertisements, measuring the return on investment can help allocate marketing dollars more efficiently
- Time to Service: For service-based franchises, the speed of delivering service can be a critical KPI
- Upsell and Cross-sell Rates: Measures the effectiveness of sales strategies to increase the average transaction value
- Cash Flow: Regularly monitoring cash flow ensures you have enough liquidity for daily operations and potential investments
- Debt to Equity Ratio: If you’ve taken loans to establish your franchise, this ratio can help assess your financial leverage and solvency
- Employee Turnover Rate: A high turnover can increase training costs and potentially impact service quality. This can help to point out whether there is something wrong with relation to your company culture or the attractiveness of your business to members of staff
- Labour Cost Percentage: Indicates how much of your sales revenue is being spent on labour. This can help in workforce optimization and scheduling
Anything you choose to measure & that is important to you can be a KPI. it doesn’t have to be financial. Other metrics could relate to use of time, service delivery, marketing, team & staff, recruitment & training, for example.
It’s important to have a business plan & an idea of where you’re going. If you’ve got a plan for your business (perhaps over the next year or five years) it makes it easier to know what you need to measure in order to get there: the plan will inform your choice of KPIs. For example, if you want to sell the business, you might focus on different things to someone who wants to grow the business or someone who wants to have more free time within their business.
KPIs for Estate Agencies & Letting Agents
For estate agencies or letting agents, which is the main focus of Belvoir Group, here are some KPIs that are industry-specific. For those looking for franchise opportunities, these KPIs may form the basis of questions to ask the owner of a franchise if you are looking to purchase a franchise resale:
- Number of Listings: Track the number of properties listed by the agency. A growing number can indicate good market performance or reputation
- Sales Conversion Rate: Measures the percentage of listings that result in a successful sale or lease
- Average Time on Market: The average number of days a property remains listed before it’s sold or rented. A shorter time can indicate effective marketing or appropriate pricing
- Average Selling Price: For estate agents, this metric shows the average sale price of properties
- Gross Rent Multiplier (GRM): This is calculated by dividing the property’s sale price by its annual rental income. It’s useful for analyzing and comparing property investment potentials
- Number of Viewings: The number of viewings a property gets before being sold or rented can offer insights into its appeal or the effectiveness of its promotion
- Lead Generation: Track the number of new leads or enquiries. This can be broken down by source, such as website inquiries, walk-ins, or referrals
- Lead-to-Client Conversion Rate: Measures the percentage of leads that turn into clients, offering insights into the agency’s sales process’s effectiveness
- Customer Satisfaction/NPS: Collect feedback from buyers, sellers, landlords, and tenants to gauge satisfaction levels and overall service quality
- Revenue Growth Rate: A straightforward metric to assess the growth of the agency over time
- Tenant Retention Rate (for letting agents): Measures the percentage of tenants who renew their lease agreements, which can indicate tenant satisfaction and the quality of property management services
- Number of Maintenance Requests (for letting agents): High numbers might indicate property quality issues or suggest the need for renovations
- Operating Expenses: Monitor the costs associated with running the agency, such as marketing, office rent, staff salaries, and more
- Website and Digital Metrics: Track website traffic, online inquiries, bounce rate, and time spent on site to evaluate online marketing effectiveness
- Customer Acquisition Cost: The average cost to acquire a new client, including marketing expenses, advertisements, and any other associated costs
- Customer Lifetime Value: An estimate of the net profit from the entire future relationship with a customer
- Commission Revenue: For agencies that operate on a commission-based model, it’s crucial to track total commissions earned
- Referral Rate: Measures the percentage of new business that comes from referrals, which can be a sign of high client satisfaction
- Inventory Turnover (for letting agents): The number of times rental inventory is rented out in a specific period. High turnover might indicate strong demand or effective marketing
- Vacancy Rate (for letting agents): The percentage of properties that are vacant relative to the total number of rental properties managed. A lower rate is generally preferable
If you are interested in running your own franchise & would like the support of a group that can provide support on a number of back-office functions including training, compliance & marketing, leaving you to focus on what you’re best on, have a chat with our team. If you’d like to find a franchise opportunity, you can take a look at our franchise resales to see the businesses that are available right now for you to step into.
If you enjoyed reading this article, you might also like: How Much do Estate Agents Earn in the UK and Our Tips for Having a Successful Property Franchise