Key performance indicators (KPIs) can act as valuable tools for franchisees to evaluate the performance of their business. As its name suggests, KPIs are specific measurements that can indicate how well a business is doing and provide trackable data that can be used to help identify trends and patterns over time.

Selecting the right KPIs to track is important, as they can offer data, insights, historical trends, and identifiable areas that need improvement.

In this post, we’ve listed several KPIs you can consider monitoring for your franchise business. However, this is not an exhaustive list, and you may add additional metrics as you go. Additionally, not all KPIs will apply to your franchise business, so it’s important to consider which apply to the products and/or services you offer. KPIs should be beneficial and help you better understand your business, so feel free to be picky over which ones you choose to implement and seek guidance from your franchisor.

The KPIs we explore include:

REVENUE/GROSS SALES

Revenue refers to the total amount of money your franchise business generates. Part of revenue is your gross sales, which are specific to the income derived from selling your products/services. If you have no other income coming in (such as from investments, for example), revenue and gross sales might be interchangeable terms for you. However, it can be separate if your franchise business brings in additional income.

HOW TO CALCULATE IT:

Select a period, such as a week, a month or a quarter, that you want to track and add all the sales transactions generated within that period. You can gather this data from your point-of-sale system or any other software that tracks your transactions.

WHY IT MATTERS:

Monitoring how much your business brings in is a crucial KPI to help determine financial performance. By tracking this metric regularly, such as weekly, monthly or quarterly, you can gain valuable insights into your business’s health, identify seasonal patterns, evaluate the impact of various sales strategies you have implemented, and more. Are you meeting your targets? Are sales declining or increasing month over month? These questions can often be answered by tracking your revenue/ gross sales KPI.

NET PROFIT

Your net profit is the amount you retain after covering all your expenses, including rent, employee salaries, inventory costs, royalties, and more. Tracking this KPI can be crucial, as it helps you understand how much profit you are actually making.

HOW TO CALCULATE IT:

Subtract your revenue from your expenses. For example, if you earn $275,000 and spend $90,000 on expenses, your net profit is $185,000

NET PROFIT MARGIN:

Because your net profit totals a dollar amount, calculating and tracking your net profit margin provides a percentage that can help you compare performance, regardless of your revenue changes. To calculate it, divide your net income by your total revenue. Once you have your total, multiply it by 100 to get your percentage.

WHY IT MATTERS:

A low net profit margin means your expenses are larger than your revenue. When this occurs, your business wouldn’t be considered profitable. Meanwhile, a high percentage means you are generating a profit because your costs are lower than your revenue. Determining a “good” net profit margin will depend on your industry, but the average is generally 10%. Your franchisor may be able to tell you the network average or what percentage you should aim for.

Keep in mind that this percentage alone should not be the only KPI you track to tell you how well your business is performing and should be used to evaluate your costs and financial strategies to help uncover ways to boost profit and keep expenses lower.

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LABOR COST PERCENTAGE

As a franchisee, you will likely lead a team. It is important to find a balance between having staff to support daily operations and generating profit, and that’s where calculating your labor cost percentage can come in handy. This financial metric can help you determine how much is allocated toward labor and if you should optimize your spending.

HOW TO CALCULATE IT:

The formula is: (total labor cost / total sales) x 100. Keep in mind that total labor cost can include more than just wages. For example, employee benefits, vacation pay, and overtime should be accounted for.

For example, if your labor costs are $24,000 and your revenue during a certain period is $74,000, your labor cost percentage would be 32%.

WHY IT MATTERS:

The exact percentage you should aim to stay under will depend on your industry. However, many companies aim for under 30%. If you find that your labor costs are higher than your sales, you can consider taking measures like cross training your staff to maintain a smaller team or scheduling your employees more effectively to avoid overtime.

Consistently tracking this metric can be important. A sudden spike in your labor cost percentage may indicate that while sales are low, you are still scheduling your entire team, leading to excess labor expenses. If that were to occur, you can plan to reduce staffing during slower periods. On the other hand, if your labor cost percentage is very low during a busy peak, it may suggest that you are not scheduling enough employees, which could result in slower service, employee burnout, and potentially decreased customer satisfaction as a result.

CUSTOMER FEEDBACK

One of the benefits of being a franchisee is the built-in brand recognition and established business model that comes with your investment. While these elements are valuable, your customers still play a crucial role in the success of your franchise business. Their experiences directly impact your sales and reputation in the community, so maintaining high levels of customer satisfaction is key.

One way to assess this is by gathering customer feedback, which can be considered a more general KPI, as you can collect feedback through various channels (rather than using a specific formula), such as talking directly with customers, monitoring online reviews, and more. You can identify patterns or trends by tracking the number of positive versus negative reviews. This feedback is essential for shaping your business strategies and determining the necessary steps your team should take to meet customer needs.

CUSTOMER SATISFACTION SCORE

A customer satisfaction score (CSAT) is a way to assess how satisfied your customers are with their experience engaging with your business’s products/services. It is typically based on a variation of the question, “How would you rate your overall experience with [insert franchise business]?” followed by a scale from one to five, one being very unsatisfied and five being very satisfied.

To calculate your CSAT, first identify the total number of customers who rated their experience as “satisfied” (4 out of 5) or “very satisfied” (5 out of 5). Then, divide that number by the total number of customers surveyed and multiply the result by 100. For example, if 44 customers rated your products and services as 5 out of 5, and 39 rated them as 4 out of 5, but a total of 150 customers completed the survey, your CSAT would be 55%.

Like many percentage benchmarks, interpreting your score to determine if it’s good or bad can depend on your industry. Generally, a score between 70% and 85% is considered “good,” while a score above 85% is seen as “excellent.”

You can gather the data for this by asking customers for their feedback after their purchase, sending an automated email (assuming you have their consent to obtain their email address), using software that prompts customers for a review after an e-commerce purchase, etc. Remember that the survey should be quick for customers to complete, ideally just one or two questions, which will increase the likelihood of them filling it out.

NET PROMOTER SCORE

A net promoter score (NPS) determines how likely your customers are to recommend your franchise business to others. Like the CSAT, the NPS is based on a single question: “How likely would you recommend [franchise business] to a friend or colleague?” A scale is provided between zero (not likely at all) and 10 (extremely likely). Based on their scores, respondents fall into three categories: promoters (scores of nine or 10), passives (scores of seven or eight), and detractors (scores ranging from zero to six).

To calculate your NPS, subtract the percentage of detractors from the percentage of promoters. For example, 80% of respondents are promoters and 15% are detractors, so your NPS would be 80-15 = 65. Note that passives are intentionally not included in this calculation. To determine the percentages of promoters and detractors, divide the number of respondents in each category by the number of responses received.

NPS values can range from -100 to 100. The average NPS is 32; a score between -100 and zero indicates a need to improve customer satisfaction strategies. However, it’s important to compare your NPS against industry benchmarks to see how your franchise business measures up.

Whether you’re tracking your CSAT, NPS, or both, you can gain a clearer understanding of your customers’ thoughts, opinions, and attitudes toward your franchise business and identify if there are areas you need to improve to boost those scores.

SOCIAL MEDIA

Keeping track of your online presence and how current and prospective customers engage with your content can be extremely valuable. Since 76% of consumers look at a business’s online presence before they visit it, it’s important to make sure you optimize your social media platforms, such as by creating engaging content that will get eyes on your posts, replying to users in the comments, etc.

Although the franchise you invested in likely has a national account, creating your own account (if your franchising terms allow) can create a more personal and local strategy connecting you with your customers.

You can track social media KPIs over time to help understand what’s working and needs improvement. The data can often be found in the free analytic tools that several platforms provide for business accounts, such as the “professional dashboard” on Instagram. Here are some KPIs to look out for:

  • Views/impressions (you can often compare who was a follower versus a non-follower)
  • Likes
  • Comments
  • Saves & shares
  • Click-through rate (the percentage of people who clicked on a link within your post, which you can calculate by dividing total clicks by total impressions and multiplying the total by 100 to get a percentage)
  • Engagement rate (how many users interact with your content through likes, comments, shares, and saves compared to how many users saw it, which can be calculated by dividing your total engagement by total reach and multiplying by 100 to get a percentage)

FRANCHISING WITH DOGTOPIA

At Dogtopia, we equip franchisees with the tools they need to lead in the booming pet industry. Find out why Dogtopia may be the right business opportunity for you, and review our FAQ page if you have questions about the pet industry, Dogtopia, or the investment.