Franchisors have tremendous amounts of data, but inconsistent expense data creates a critical blind spot.

A key metric for a franchise brand’s health is how profitable the franchisees in the system are. Sales growth and unit economics are also key indicators, but owner profitability largely determines whether the brand will succeed. Forward-thinking franchisors understand that not all growth is created equal, and that revenue alone only tells one side of the story.

Franchisees can post record-breaking sales and still not turn a profit. Left unchecked, this can lead to closures and slower expansion, even when the numbers look good on paper. The inverse is true when franchisees are profitable. They add stability to the system by reinvesting in the brand, referring prospects and, in the best-case scenario, becoming multi-unit operators themselves.

But at the franchise system level, how can franchisors determine profit at the unit level?

Sure, financial statements can provide a sense of how a unit is performing. Yet, experienced franchisors know that using them to evaluate unit-level performance is like comparing apples to oranges. At best, franchisors water down their Item 19 statements, hurting their competitive position. So, if franchisee profitability is vital to the brand’s success and health, why do franchisors operate blindly?

The problem with understanding profitability at the unit level is that you need comparable data to determine performance across locations. While franchisors have access to standardized sales data, the same doesn’t apply to the expense and profit side of the equation.

Unlike sales data, which consistently runs through a centralized POS system, expense data is decentralized.

Source link