< Managing A Franchise System : Ongoing Development


top franchisees focus on PERFORMANCE NOT COSTS

by Simon Lord, last updated on 29th September 2011

New research says franchisess who focus on minimising costs run the risk of harming their overall profitability

In This Article

New research conducted by the Australian-based Asia-Pacific Centre for Franchise Excellence suggests that when a franchisee’s focus is purely on minimising costs, then service or product quality may suffer at the overall expense of the business. In fact, top-performing franchisees may have higher operating costs than lower performing franchisees.

At a time when cost-minimisation is seen as vital, the findings are a timely reminder to franchisors and franchisees that cutting corners can actually compromise profitability. A café franchisee who focuses too much on reducing wastage will have his display cabinets always half-empty, rather than offering a full range of fresh and tempting-looking food. A retailer who turns off 25% of the lights will leave his shop looking dingy and make both the products and the environment unattractive to consumers. While controlling costs is important, it isn’t the only way to improve profitability, as Paul McCormick of Grant Thornton points out here.

The Franchise Performance Metrics research is based on data for nearly 70 franchisors and more than 9,000 franchisees. Researchers analysed a range of key performance indicators looking at averages for all franchisees, as well as the top 20 percent and the bottom 20 percent, to identify trends in franchisee performance.

According to Professor Lorelle Frazer, the report shows that ‘Implementing key performance metrics across the franchise system will provide guidelines for franchisees (as well as field support staff and the franchise head office) on the targets they need to focus on to create the greatest profit and success.’

‘Each franchise will have its own ‘sweet spot’ across a range of metrics to achieve maximum performance, and while these may vary from unit to unit and franchise to franchise there are some underlying principles which are consistent throughout.’

‘Importantly, franchisees need to balance expenses with service quality across several areas from labour costs, to product and packaging costs, local area marketing programmes and more.’

The Report

The Franchise Performance Metrics Report 2011 contains 124 pages of original research that provide detail on how franchises are performing across many key performance indicators that drive growth, including:

  • How franchisors are changing in the current economic climate
  • What constitutes franchise best practice across a range of KPIs
  • Areas where top franchisors and franchisees spend more money to achieve greater returns
  • Franchisor net income per franchisee
  • Franchise fees, investment costs and franchisee return on investment
  • Average franchisee recruitment costs and conversion rates to guide budget decisions and assess success
  • Comparisons for like franchises
  • The formula to maximise return on investment for franchisors and their franchisees, based on best practice observations

The full reports costs AUD $1800.00 – more details are available here.

 
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