Blueprint for Growth, Part 2: Expand your range of products or services
This article, the second in a 3-part series, continues our discussion of your “blueprint for growth.” Consider a combination of these possible pathways:
- Growing your core business (organic growth—same services, same territory)
- Expanding your range (more products and services, same territory)
- Expanding your territory (extend your geographic region)
To set actionable goals and measurable milestones for each strategy, you MUST do the math. In part 1 (Blueprint for Growth: Do the Math!), I outlined the metrics and analysis required to form the blueprint for growing your core business. In this article, I share insights on building the blueprint for expanding your range of products and services.
Expand your range of products or services
As part of their growth strategy for expanding the range of products or services offered, many franchisors recommend a cadence for adding infrastructure (staff, equipment, facilities). Assess the opportunities by determining the sales needed to produce your required ROI. To do this, you’ll need to know what you must invest up front and how your costs will change in the future.
For example, a sign maker can provide more services to existing customers by adding bigger printing equipment that expands in-house capabilities. A wholesale flooring company may increase revenue by providing kitchen and bath products to their existing construction contractor customers. Both require up-front investments for equipment or buildout, plus staff to support the ongoing operations and future maintenance of the new equipment or facility.
As with the core business (see part 1), a simple breakeven analysis is your friend. This time, instead of using the existing cost structure to set sales targets for the location, you will consider the incremental costs related to the new line. List all the new fixed and variable costs related to the opportunity. Then, estimate the variable costs as a percentage of sales and the annual fixed costs.
An analysis based on an average customer, job, or invoice is extremely useful. Why? Because you can determine the activities needed to earn your targeted ROI. Example: How many jobs per month would yield a 33% ROI on a $30,000 expansion investment?
At 3 jobs per week this investment pays for itself in 3 years. Producing more jobs would shorten the payback period. A goal of 3 jobs per week keeps you and your team focused on driving success. On the other hand, hoping you make money on the investment might work. But hope is not a strategy. Do the math!
How can franchisors help?
Franchise executives provide vision and leadership to vet opportunities by selecting a viable range of products and services for expansion. Then they provide guidelines so franchisees know when they are ready to take the next step. Leadership and vision are essential to successful brand development. Still, franchisees can better manage their growth with education and information.
Financial education. Provide knowledge, financial skills, and tools. Ensure they have numbers they can trust, and that they know how to use financial information to make better, more profitable decisions. This includes a solid understanding of the many uses of breakeven analysis, along with basic budgeting and cash flow planning skills. Check out our website for a quick-start, scalable solution to get franchisees on the right financial track, right now.
Benchmark your KPIs. Collect, analyze, and share information. Demonstrate what “good” (and achievable) performance looks like at various phases of unit maturity. Benchmark sales metrics, profitability, and cash flow ratios so franchisees can construct reliable plans and obtain the financing they need to succeed.
Do the math
What incremental sales are needed to earn your targeted ROI? Do the math! Breakeven analysis is an essential skill set for all business leaders. If this seems challenging, invest in yourself first. Take an online course to learn and practice using this essential skill.
In my next article I will detail the blueprint for growth when adding a location.
Barbara Nuss is the president and founder of Profit Soup, a financial education organization specializing in providing services to franchisors and franchisees to enable them to trust their numbers, focus on priorities, make better decisions, and earn more profit. She can be reached at email@example.com or 206-282-3888.
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