4 KPIs Every Franchise Business Owner Should Follow
KPIs are leading indicators, and they are essential to navigate change as well as indications of future profits for your franchise.
Key performance indicators, or KPIs, are measurable values that help you gauge how well your business is meeting its goals. Paying attention to KPIs can help you quickly assess your business’ current and future profitability. During disruptive stages of your business, it is even more important to identify the status of your business through these four KPIs.
• Gross profit percentage
This is calculated by subtracting your cost of sales, such as food or paper costs, from your total sales.
• Combined labor
Includes your crew and management labor, or labor that directly resulted in sales. Other general and administrative labor, such as office labor and owner labor, is not included.
• Profit after controllables
Controllables are expenses you can control. For instance, rent and royalties are not controllables. An equipment purchase, however, may be a controllable expense.
• Contribution margin
You can compute your contribution margin by deducting the variable costs of your profit and loss statement from 100%. Once your franchise business has met its breakeven sales, your contribution margin can be used to estimate incremental cash flow dollars from incremental sales.
Here is the benefit of tracking these four KPIs: Know where you are in relation to your goals.
Following these four KPIs can help you quickly determine if you’re on the right track…or get back on track after a major change or disruption. Depending on the nature of your goals, other KPIs may be applicable to measuring your progress. These four, however, are directly tied to your bottom line.
Hold your people accountable.
You can train and hold your management staff accountable for these four KPIs to accelerate performance improvements, which will ultimately determine if you make or lose money in the future.
Make better decisions.
Knowing these four KPIs can help you assess your financial health in real time. The next step is to understand how these four KPIs play out across your entire portfolio of stores or locations. With this insight, you’re empowered to strategically increase profit, improve cash flow, and boost efficiencies if needed.
How DS+B can help.
Our advisors and CPAs can help you establish the right KPIs for your franchise business, so you can gain a clearer understanding of your financial position. We can even track the KPIs required by your franchisor, measure ratios, and identify areas for improvement. Contact us today to get started and plan for a brighter financial future.