The profitability model of a franchise unit is critical to the success of the franchisor as well as the franchisee. There is a known adage that a franchisor's success is measured by the success of its franchisees. Moreover, the success of the franchisee is directly impacted by the unit profitability, or the unit economics, which compares revenues and costs associated with the franchise's business model to determine how profitable the franchisee might be and to forecast the anticipated return on investment for each franchisee.
The basics are always the same--the need to control and refine costs to keep in line with revenue and the level of customer satisfaction experienced at the franchisee location, which is critical to supporting the brand and, ultimately, the franchisor. Franchise systems may operate in different industries, but there are many operational similarities. The following five step process can be very effective for franchise systems across all industries:
This is the golden rule that must be followed throughout the next four steps. Cutting costs and streamlining the operations are useless if the revenue is not there. Revenue is directly related to customers and the customer experience influences the continuation of existing customers, as well as helps to attract new customers. How do you rate the customer experience in your franchisee location? Focus on the franchisee's employees. Quite often, reducing operating costs potentially infringes on how the last employee in your location interacts with the customer. In a QSR, for example, it would most likely be the cashier, potentially a minimum wage employee, with little or no experience or training in customer service. This employee is now designated as the QSR gatekeeper in regard to the customer's lasting impression. Is that the sendoff you are looking for? The impact can be damaging and for every existing customer lost, the new customer acquisition cost rises exponentially.
Be realistic. The most important step in working toward improvement is for a franchisor to assess the franchise model and determine whether the unit matrix presentation given to the franchisee is actually achievable and transparent. Quite often, franchisors create a unit of operation for a franchisee based on the operations of a "company owned unit." In those cases the company's unit may have been working with numerous shared costs, as well as volume...