Franchisee Monitoring: How to Keep Track of Franchisee Performance

Franchising your business is a lucrative way to expand quickly and increase your profits. That said, there are many strategies you’ll need to implement to ensure your franchisees continue to uphold your brand standards and operational guidelines. 

So, how do you monitor your franchisees and track their performance without time-consuming strategies or oppressive micro-managing tactics? In this guide, I’ll break down how to track the most crucial key performance indicators for franchises. I’ll also offer some valuable tips on helping your franchisees make improvements.

Key Takeaways

• Define clear performance metrics such as sales targets, customer satisfaction scores, and compliance standards to objectively assess franchisee performance.
• Implement regular reporting systems, including financial statements and operational reports, to monitor franchisee activities and identify areas needing improvement.
• Conduct routine evaluations, including performance reviews and audits, to ensure adherence to brand standards and operational guidelines.
• Provide continuous franchisee training and support to help franchisees enhance their skills, adapt to industry changes, and maintain high performance levels.
• Leverage technology and data analytics tools to gain real-time insights into franchisee operations for proactive decision-making.
• Effective franchisee monitoring ensures brand consistency, operational excellence, and mutual success within the franchise network.

Key Performance Indicators for Monitoring Your Franchisee

Before tracking and evaluating your franchisees, you need to determine which key performance indicators to monitor. There are countless franchise analytics to keep tabs on, but here are a few of the most important ones.

Sales

Managing your organization will be difficult if you don’t know how much money your franchises are making. The most important key performance indicator to pay attention to is gross sales. Otherwise known as sales revenue, gross sales are equal to the total revenue (before expenses) generated by a franchise’s sales over a given period, whether that be a week or a year. 

Gross sales are an essential metric for calculating overall income and profits. Your overall sales are also key in determining the effectiveness of your marketing campaigns as well as the overall potential of a franchise location. Tracking franchise gross sales allows you to understand seasonal fluctuations, address any issues, and optimize your sales strategies.

Expenses

Expenses are the costs of running a franchise, including rent, salaries, inventory, materials, utilities, insurance, marketing fees, and royalty payments. Essentially, a franchise’s expenses are the total cost of goods plus operating costs. You need to keep track of your franchise’s expenses so that you can calculate their profits accurately. For example, if a franchise spends $4,000 per month on rent, $10,000 on employee wages, $5,000 on royalty fees, and $5,000 on operating costs and inventory, the total monthly expenses are $24,000.

Keeping track of expenses can also help you improve the franchise’s profitability. You’ll be able to see the expense reports across all franchise locations. So, you may be able to identify ways to cut costs across different branches and ensure waste is kept to a minimum.

Net Profit Margin

You can calculate a franchise’s net profit margin by deducting its expenses from its gross sales. On top of giving you a clear insight into a franchise’s overall business performance, this KPI helps you identify weak areas and make informed decisions for improvements. You’ll also better understand the franchisee’s ability to generate revenue and manage expenses.

You should understand the profitability of not just your entire business but also your individual franchises. Doing so will make planning future investments, paying debts, and expanding your operations much easier. Moreover, you’ll need to be able to prove your profitability to keep attracting and retaining new franchisees.

Growth Rate

The ultimate goal of most franchisors is to grow their business and make more profit. The growth rate is a metric used to determine the change in sales performance over a set timeframe. By tracking this KPI, you can determine whether a franchise is contracting, expanding, or retaining a steady income. The growth rate is also helpful in predicting a franchise’s potential growth and future business performance.

You can calculate a franchise’s growth rate percentage by subtracting the initial value of the franchise from its current value, dividing the result by the initial value, and then multiplying the total by 100. Sound confusing? Let me break this down further.

If a franchise is currently valued at $240,000 but was initially valued at $200,000 a year ago, the growth rate would be:

• 240,000 – 200,000 = 40,000; 
• 40,000 / 200,000 = 0.2; 
• 0.2 x 100 = 20%.

Customer Satisfaction and Loyalty

Another important metric to track when monitoring your franchisees is customer satisfaction.  The Net Promoter Score (NPS) is the KPI most commonly used to gauge customer loyalty and satisfaction. The best way to calculate NPS is by obtaining customer feedback through surveys and questionnaires.

Ask customers to rate how likely they would be to recommend the franchise to others, usually by picking a number on a scale of 1 to 10. You can then categorize your customers’ scores into detractors (those who won’t recommend your franchise to others), passives (those who might recommend you to others), and promoters (those who are likely to recommend your franchise). 

The more promoters you have compared to passives and detractors, the higher your NPS will be, and a higher NPS indicates more satisfied customers.

Other Important KPIs for Franchisee Monitoring

The above KPIs are the most crucial to keep track of when monitoring franchisees, but there are many other analytics you should be paying attention to. Let’s take a look at a few other important metrics:

• Employee Development and Retention Rate: Gain insights into how well a franchise develops its employees and keeps them on board.
• Operational Efficiency: Determine whether a franchise is meeting its productivity and waste targets and identify areas for improvement.
• Inventory Turnover: This KPI keeps track of how often a franchise sells and replenishes its stock in a specified period.
• Customer Acquisition Cost (CAC): The CAC takes metrics such as marketing and sales expenses into account to calculate the cost of acquiring a new customer.
• Return on Investment (ROI): The ROI can help you determine the profitability of a franchise’s business decisions. For example, you can analyze whether investing in a marketing campaign yielded a profit or a loss. If you invest $100,000 into a campaign that generates a revenue of $140,000, then your ROI is 40%.

Why You Should Measure Franchise KPIs

Wouldn’t it be great if franchising your business consisted of setting up a brand manual, onboarding franchisees, and then waiting for the royalty payments to roll in? As you might expect, running a franchise isn’t as simple as letting your franchisees operate their branches in any way they see fit. You need to constantly assess the performance of your franchisees so that you can make informed business decisions, improve profitability, and uphold the reputation of the entire franchise.

Here are some of the main reasons you should be monitoring franchisees and tracking their performance.

Maintain Consistency Across Your Network

One of the most challenging aspects of franchising is ensuring that all franchisees comply with your strict brand standards. Tracking KPIs like expenses, sales, net profit, and customer satisfaction not only tells you how much money your franchisees are making but also allows you to enforce your policies and operational guidelines.

Identify High-Performing Branches

If you want to get the most out of your franchisees, rewarding hard work is a must. On top of tracking KPIs, you can set goals, targets, and benchmarks to measure your franchisees’ performances against industry standards and your expectations. Then, you might consider rewarding high-performing franchises with bonuses, incentives, opportunities for growth, or just some simple recognition – which can go a long way.

Support Low-Performing Franchises

Evaluating KPIs isn’t all about rewarding those who excel. It’s also about identifying struggling branches that might require some additional assistance. You might find ways to help franchisees overcome challenges through coaching, consulting, or mentoring. Additionally, you may decide to invest in additional marketing for certain branches to increase their brand awareness and visibility. At the end of the day, a franchisee’s success simply means more money in your pocket, so it’s often worth investing in improvements rather than merely letting franchisees struggle alone.

Enhance the Customer Experience

Ultimately, customer satisfaction is the most important aspect of running a franchise business. If you have a loyal customer base, it’ll be much easier to expand your operation and open new locations. Through customer feedback, you can gain insights into your customers’ needs, expectations, and preferences. Using these metrics, you can improve your products or services and continuously perfect your operation. You might also discover ways to retain and attract more customers, such as by implementing discounts or loyalty programs.

How to Establish Franchisee Performance Targets

Understanding which KPIs to track is all good and well, but you’ll also need to establish specific and measurable targets for KPI monitoring to prove truly useful. You can use benchmarks to compare the performance of your franchisees against competitors in the same industry, network, or locality. However, you must make sure your targets are specific, measurable, achievable, realistic, and time-bound (SMART).

An example of a good performance target for a restaurant franchise would be: “Increase monthly revenue by 10% within the next six months by upselling higher-margin menu items and improving table turnover rates during peak hours.”

Setting performance targets is not a one-size-fits-all process for all your franchises. Each of your branches likely faces different challenges. So, when establishing benchmarks for your franchisees, consider the following points:

Use Reliable and Relevant Data Sources

You must set realistic and meaningful targets for your franchisees, which means analyzing the most relevant data to their market, location, situation, and industry. You can obtain data through market research, industry reports, competitor analysis, customer feedback, and your own historical records. Just make sure the data is up-to-date and accurate.

Set Custom Performance Targets

Establishing benchmarks usually involves comparing your franchisee’s performance with competing franchises in the same industry or region. However, you must recognize that all businesses have unique threats and opportunities, as well as strengths and weaknesses. This makes it vital to customize your targets to the franchisee’s specific characteristics. 

For example, for a franchise located in a busy urban area, you may set a target to increase weekday lunch sales by 20% over the next quarter by offering corporate catering packages. Meanwhile, for a suburban franchise, you’d be better off focusing on growing weekend family dining sales, adding promotions such as “kids-eat-free” nights and family meal deals.

Include Your Franchisees in the Process

Setting benchmarks for your franchises shouldn’t be a top-down process. Instead of simply dictating your expectations to your franchisees, you should include them in the conversation. Monitoring franchisee performance should be a collaborative process in which the franchisee can input their thoughts and opinions. Your franchisees are the ones who actually will be on the ground running the business, so they will understand the franchise better than anyone else. By including your franchisees in the process, you can motivate them to take responsibility and accountability for their performance and ensure targets are realistic.

Constantly Review Your Performance Targets

Establishing performance targets is not a one-off task you can simply forget once complete. It’s an ongoing process that you’ll need to adapt constantly. Review and update your franchise performance benchmarks frequently to stay up to date with the ever-changing and unpredictable market.

Tracking and Evaluating Franchise KPIs

Now that you know which KPIs to track and how to establish them, you need to understand how to actually track and evaluate them.

Franchise Management Software

Software technology has advanced significantly in the past few decades, and the franchise industry has not been untouched. Several different software solutions are designed specifically to help franchises manage certain aspects of their business, including sales, inventory, marketing, accounting, and human resources. Franchise management software allows you to track KPIs across all your branches using one intuitive platform. Most solutions can generate reports that enable you to evaluate performance metrics and identify trends, anomalies, and patterns. Here are a few of my top picks for franchise management software:

• Fathom
• Quixy
• Loop

Surveys

The best way to track your customer and employee satisfaction is to use surveys. Send out surveys to customers, employees, or even the franchisees themselves to obtain feedback about how satisfied they are with the company. Surveys are helpful in gathering data on customer satisfaction and loyalty, employee engagement, and much more. The best thing about using surveys is that you cut out any speculation. Instead of essentially guessing how customers feel about the business, you get real feedback that you can easily use to improve.

Audits

A hands-on approach to gathering information about your franchises is to perform regular on-site visits. This enables you to ensure that the franchise is complying with your brand standards and procedures. You can also use audits to train, coach, and provide feedback to staff or franchisees.

Strategies and Tips for Enhancing Franchisee Performance

You will almost certainly find much room for improvement when monitoring your franchise performance. So, it’s important to understand how to use the performance metrics to take action and make improvements.

• Establish Transparent Communication Channels: Use technology to give your franchisees real-time access to their KPIs and schedule regular meetings where franchisees are free to voice their concerns and opinions.
• Offer Additional Support: You can use your performance metrics to identify and address specific skills gaps. I also recommend pairing underperforming branches with high performers so that they can learn from one another.
• Provide Incentives: Incentives and recognition go a long way in the world of business. Consider implementing friendly competitive strategies between franchises using contests or leaderboards.
• Focus on Local Strategies: You might consider running geotargeted campaigns to help franchisees in a struggling locality. Analyzing localized data can also help you set realistic benchmarks and revise them accordingly.

Set Up Your Franchisees for Success

Since franchisees’ and franchisors’ success is inextricably tied, it is always in your best interest to provide your franchisees with the resources they need to succeed. One of the best ways to do this is to constantly monitor their performance and provide feedback or support when necessary. Franchisee monitoring doesn’t need to feel overbearing or intrusive; instead, it should be a collaborative process that helps you and your franchisees achieve greater success.

Looking to further expand your franchise business by finding qualified and interested franchisees? Check out Franzy, the world’s #1 platform for franchises. Franzy will help you make informed, data-driven decisions and grow your organization in a healthy way.