Most multi-unit franchisee owners know this very well. It’s called Unit Level Profitability (ULP). The old-school franchise idea of caring only for monthly aggregated Sales/Operations/Accounting reports is over. Information technology is changing everything.
So what are the factors that impact unit profitability?
There are quite a few performance metrics and their derivatives to track. However, there are 3 things that stand out: 1) train the franchisees to see the value in tracking financial metrics that matter; 2) compare actual results versus your other unit’s performance or with industry standards; 3) promote the “club” where all your multi-unit owners share and compare best practices. Modern Enterprise Resource Planning/Accounting systems are making this very easy by providing reports with meaningful and actionable information.
So the unit level manager wants to know what the best he or she can achieve is.
Before we go further, sometimes it is wise to seek services from subject matter experts. They know benchmarking and have experience with multiple customer engagements. They have learned over time the good, the bad and the ugly. And what is the biggest fact they have found; Surprise and surprise! And this is universally true: the highest sales leading units are not necessarily the highest profit leaders.
What do the highest profit leaders do and know that the others do not?
Typically these leaders and their units make the difference by achieving:
a. Gross Margin differentials which can approach 6 to 10% above average
b. Operating Expense (below the line) differentials can be 3% – to – 6%.
c. These factors ended up with unit discretionary operator profits to be 22%, 10% higher than the average.
One might then ask, how is that possible? Or what makes the difference?
Yes, we have heard this saying many a times “the devil is in the details”. And what does that mean. Let’s look at the details that can/will contribute to the differentials in profitability mentioned above. To increase profitability, good single unit operators focus on three areas: COGS (Cost of goods sold), labor, and rent. And it is also a fact that single unit change in these factors makes a huge difference to the bottom line. When it comes to labor; monitoring employee hours; making sure wages are competitively priced and no unauthorized discounts to customers. Similar incremental factors apply to the other 2 factors.
There is good news. Implementing next generation information technology tools like a good franchise management ERP system are known to make a big difference in profitability.
Companies like Acumatica, Cloud Based enterprise resource planning (ERP) software provider has made it very easy for the franchisees to deploy these solutions. What are the “goodies” you get from these solutions?
They are mobile ready: Means you have access to reports/dashboards instantly and allows you to drill down into the contributing factors.
They have built in security: Being in the cloud; the cybersecurity software is updated in real time to keep ahead of the “hackers”.
They are agile: Each franchise has unique requirements. These solutions provide complete automation throughout the value chain. Upper level: Sales (CRM), Operations (SCM – Supply Chain), And Finance (GL; A/P; A/R and more). And the underlying technology platform allows you to integrate your existing Point of Sale (POS) System with the robust ERP.
Conclusion:
Multi-unit franchisees in 2017 and beyond can increase their unit level profitability. Best of all each unit level increase is amplified across all units and creates a tremendous payoff for the owner. That is why the franchisors are increasingly giving preference to multi-unit owners over single unit starters.
Please contact Jim Carroll, President Advanced Solutions and Consulting (ASC); 2017 MVP Award holder for Acumatica: jcarroll@solutionsco.com and he will be glad to share examples of multi-unit operators who have already achieved significant improvements in profitability. ASC is based in Solana Beach, CA but has national reach.