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Boosting franchise profitability
Written on the 24 March 2010 by Fiona Taylor
Secrets to boosting franchise profitability were revealed to webinar attendees this week by franchise profitability expert and Avatar Business Navigators Director David Campbell.
David said by understanding the four forces of business, the model’s breakeven points, spool rates and franchisee motivation, franchise profitability could be dramatically enhanced.
Four forces of business
David said there are four forces of business that underpin good business management, namely:
“You need thrust in business to get off the ground. Thrust is what we’re able to generate through sales,” David said.
“Lift in business comes from our margin. Too often people make sales but with low margin and it doesn’t work. The gross margin needs to be right.
“The weight in business is the costs and drag is the inefficiency or lack of productivity,” David said.
When cost and inefficiencies are greater than the impact of sales and margin the business will make a loss.
If cost and inefficiency equal sales and margin you’re breaking even and if sales and margin are greater than the impact of costs and inefficiencies then you’ll make a profit.
“The more sales and margin gets above cost and inefficiency the profit growth is exponential,” he said.
“However, often there is one number in that equation that franchisees don’t know and that is their breakeven point.”
Shaping franchisee expectations
“Franchisors need to explain to franchisees the trajectory they are likely to take so they know what to expect,” David said.
David does this through a tool that tracks what the franchise model can do, or where the franchisee could be at throughout the franchise term based on best practice, as well as where breakeven is and also the performance of the individual franchise unit.
He said he often sees franchisees burn through their capital because they don’t have a clear understanding of how long it’s likely to take to reach breakeven, start to panic and start cutting costs.
“They usually cut labour costs, as that’s something they can control, however reduced labour leads to reduced capacity and often compounds the situation.”
Engaging franchisees to increase franchise profits
Franchisors need to focus on the little things that engage franchisees to get results and to get franchisees to work with the franchisor, David said.
One tool David uses is the ‘power of ones’.
Ask any franchisees these three questions: (He’s never had a franchisee say no to any)
David said that on average those three little ones combined will increase profit by 26 per cent.
Unlocking franchisee potential
In line with engaging franchisees you need to look at their motivations.
Most business owners struggle to link what they want out of business and what a business has to do to achieve those outcomes, David said.
“The motivator in business is not so much the cash, it’s the lifestyle franchisees aspire too,” he said.
“You need to make the connection to say if you want that, this is what the business has to do.”
David took webinar attendees through a range of simple tools which put lifestyle aspirations in to practical targets for franchisees like increasing customer count by ‘x’ or sales per customer.
David also discussed how franchisors can better track franchisee performance and the figures they should really be tracking, explaining a template he uses to easily make comparisons between franchise units.
Due to the value of intellectual property shared at the webinar, David is only making slides available to attendees.
However if you have questions on how to boost the profitability of your franchise or offer more effective field support David can be reached at firstname.lastname@example.org or 07 3832 9977.
Author: Fiona Taylor