Benchmarking can be dangerous for the financial health of your franchise business.

This might seem a curious suggestion. The benefits of thoughtfully executed franchise benchmark programs are significant since they highlight opportunities for improvements in revenue, cost control, productivity and cash flow.

How could something so useful be dangerous?

As with any ‘tool of the trade’, we need to use it, and use it appropriately, to get the result we desire. Here are some of the dangers to watch out for and tips for success when it comes to using benchmarks in your franchise business.

Franchise benchmarks are used as the primary measure of business success, rather than as a goal setting resource

Benchmarks sometimes become the target against which franchisors and franchisees assess franchise performance, rather than comparing results with individual business goals.

By providing ready-made targets, benchmarking can lead us to stop thinking about what outcomes we really want, need, or could achieve. Well designed franchise benchmark programs will highlight what’s possible at different sales levels and in different markets but each franchise business unit still has it’s own circumstances.

For example, the benchmark for labour costs may be 22% of sales. Your business may be growing and you need extra staff to meet customer service standards. For a little while this will increase your labour percentage and reduce profit. However, unless you make the investment service levels will drop and you may lose customers.

Shooting for the benchmark may not get you where you need to go. When it comes to setting goals for your business there’s no substitute for considering your circumstances when you create your budget and plan. In most cases it’s best to see benchmarks as a resource to help define your goal rather than as the goal themselves.

Franchise benchmarks can focus attention on comparison with average rather than encouraging you strive to be the best you can be

Franchise benchmarks are often expressed as averages, but who wants to be average? Striving to be the best you can be will help you get the most from your business and build a buffer for the times when things don’t go as you hoped.

Aiming for average is particularly dangerous if we end up saying things like “Average sales grew by 4% and mine were up 4.5% so I am doing OK.” -- and leaving it at that. It’s a small step from here to rationalising below average performance and finding your business starting to slide.

Larger franchise networks may have benchmarks that show the average for the top 25% of the system so you see how you compare with the best franchisees. Alternatively you might talk with other franchisees to find out who is doing better and how they get that result, or simply set yourself a goal to better the average.

Without a process to identify and share best practice, financial benchmarks can end up as a scorecard rather than a resource for continuous improvement

Benchmarks are frequently oriented towards financial statements and information from point of sale systems. This can reveal interesting business profiles but not always how the best performing franchisees achieve their results.

The power of franchise benchmarking comes from identifying the practices that drive superior performance and then applying them. Without this understanding, franchise benchmark information is unlikely to deliver hoped for performance improvement.

To get traction from benchmarks use them as a starting point for discussions that highlight and share best practice. Structured and facilitated forums or peer support groups can help to drill down to the details of what works and make sure everyone in the franchise system discovers how to implement the best practices.

Our data-rich world can result in too much time being spent looking at numbers from the past and not enough action to create the future

There’s a wealth of information available from point of sale systems, customer relationship management software and financial statements. This data is a magnificent resource for decision making, but it’s easy to become so focused on explaining what happened in the past that we neglect to create our future by taking action today.

Rather than try to manage everything, use benchmarks to decide the priorities for action and construct simple tracking reports based on the most important numbers for you. If financials are not your strength work with your franchise field manager or accountant on this area.

Benchmarking and sharing of key performance indicators and success drivers is one of the great benefits of being in a franchise network. If your franchise network provides this information try to make the most of it by taking time to think through how best to use them to drive performance improvement.