How benchmarking can promote compliance and healthy competition

Benchmarking has a mixed reputation, but can it promote transparency and healthy competition in a franchise network? 

Richard Francis, CEO and founder of Spotlight Reporting, explores how technology has allowed the process of benchmarking to become more common the franchising sector.

With more new technology than ever at our disposal, the process of benchmarking has become much easier and is now increasingly commonplace in the franchise sector.  It really is a key ingredient in a robust financial management model for progressive franchise groups.

Benchmarking has many benefits, including giving the franchisor vital insight into the trading performance and profitability of their franchisees, ensuring greater transparency and clarity for decision-makers, whilst also instilling confidence across the franchise group.  Transparent benchmarking demonstrates to franchisees that management cares about improved performance and collective ownership of key performance metrics.

Unfortunately, benchmarking currently has a mixed reputation. We hear about the need for benchmarking so franchisors can quickly identify underperformers, implying that benchmarking is only useful for troubleshooting.  This can put you at risk of alienating many of your franchisees and building a culture of fear, particularly where franchisor/franchisee relationships may be strained.

A reporting and benchmarking approach that is proactive and positive is the way forward.  Benchmarking can come in many formats and should be used to build rapport with franchisees, stimulate collaboration whilst still promoting healthy competition across the group.

The following tips provide a guide on the key things you might consider to get it right

Benchmarking to nurture and motivate

Benchmarking is a guide. It provides valuable financial and performance data; it is not a list of winners and losers, and shouldn’t be treated as such.  Anyone in business will know that numbers only tell part of a story and aren’t always indicative of overall performance.

Benchmarking is a conversation starter that allows both the franchisor and franchisee to get to know each individual franchise better. Franchisees should feel secure that benchmarking will result in improved support from the franchisor, and that they, too, can have a say in what is and isn’t working from their perspective.

Improved reporting systems are a change management process.  This means that franchisors should make an effort to visit each franchisee and take them through any new reporting processes one-on-one, sharing the value proposition and removing the fear.  Open conversations ensure you can kick start the process on the right foot and help franchisees to feel more invested in the purpose of benchmarking.

Benchmarking can also be used to reward franchisees and spur on performance, but this has to be managed carefully. For example, just rewarding the highest number of sales is short-sighted if other measures of strong performance are absent. Establishing several performance categories (such as customer service ratings, employee satisfaction, low wastage, high margins) allow all franchisees the chance to bask in the glow of success. If you do bake in a reward system, do it often – every month or every quarter – to ensure the whole group has their chance to shine, rather than feeling like they ‘miss out’ and their work is never recognised.

Invest in user-friendly technology

These days, great reporting is cloud-enabled and integrated.  What you don’t want or need is franchisees spending precious time writing reports to head office or fiddling around on out-of-date desktop software. Your benchmarking system should be customised, simple and integrated into your existing financial systems.

Spotlight Multi, for example, grabs key financial data from Xero, QuickBooks Online and/or MYOB Accounts Right Live.  Spotlight Multi also allows franchise groups to delve into non-financial data too, bringing in key metrics that round out the performance picture at the granular and group level.

Effective benchmarking requires full participation from the group chief financial officer as well as solid, consistent and timely accounting at the franchisee level.

Customise rankings

Ranking functions are excellent for franchisors to obtain a quick snapshot of highest, lowest, median and average performers across a number of metrics, but this detail can also be useful to your franchisees. Some franchisees may like ‘open’ rankings, but others can find it quite demoralising. If you’re business is struggling, it’s understandable that you may not want this shared with the whole group. You’d feel even worse knowing that the franchise two suburbs away were making a killing.

One way to overcome this is to create anonymised ranking reports for franchisees that show their performance against, for example, the group average, or a sample of others in the same category – without naming names. Only the franchisor can see the full results in this scenario. This ensures the benefits of benchmarking are realised without demonising an individual performer, helping to build a culture of trust between the franchisor and each franchisee.

Put benchmarking into context – and share for better outcomes

Don’t let your first reaction to a benchmarking report be ‘what’s going on?’ Put everything into context, because a ‘failure’ for one is a success for another, depending on the context. When reviewing a benchmarking report, consider a range of factors like time in business, general economic confidence in their region, personal circumstances, level of marketing support, etc.

What should accompany every benchmarking report is a follow up process by the franchisor. Each individual should get the chance to talk through what they consider their weak spots and challenges, and both parties can focus in on a few KPIs before the next report. This collaboration demonstrates to the franchisee that reporting, benchmarking and improving overall outcomes are a shared responsibility.

Case Study: The Cheesecake Shop

FranchiseBusiness caught up with Ken Rosebery, director at The Cheesecake Shop.

He says the two largest costs in the network are cost of goods and employment. Spotlight helps identify any nuances requiring attention. On top of being a benchmarking method, the tool has been helpful for state managers who would otherwise be trying to make sense of endless data from bookkeeping applications.

 A benefit of Spotlight for The Cheesecake Shop is that it has “conveyed a lot of confidence” to franchisees, as costs are benchmarked from timely reporting. Being able to rank stores anonymously has also been a plus.

However, Rosebery adds that franchisors will require a standardised bookkeeping system on cloud software to use Spotlight.

He also says that standardising the process can help control fraudulent behaviour as it promotes “increased transparency with financial reporting.”