Measuring Performance: Multi-unit Franchisees Utilize Unit Economics to Help Run a Tighter Ship
Multi-unit franchisee Todd Pulley knows all about measuring unit performance and profitability - even though he had no prior financial background before becoming a franchisee. Over the last 15 years though, he has developed and refined his own system for measuring his unit economics at his four PuroClean locations in New Jersey and Delaware. The effort is paying off.
Pulley manages all four units from a central office where he keeps separate books for each location, using QuickBooks Pro. He keeps tabs on his units' performance by examining the daily, weekly, monthly, and yearly financial reports he generates. He calls them his key performance indicators. "We look at key factors such as revenue, gross and net profitability, and revenue per employee, per day, and per crew," he says. "Each of my units has operational and financial standards."
PuroClean has always encouraged its franchisees to "measure what we're doing," says Pulley. He's heeded the advice, put systems into place, and has reaped the rewards. He can look at certain numbers daily, others weekly and monthly, and some only annually. "Every day we're looking at production goals," he says, "and every crew member knows the percentage of revenue goal." He evaluates his invoices weekly and holds a departmental meeting every Monday.
Measuring unit profitability is a strategic tool that savvy franchisees are using more and more. For example, Pulley says his units used to do mostly repair business, but that has changed. "By collecting and monitoring our data I was able to determine that we could increase our cash flow and profitability by decreasing the percentage of repair business we were doing and increasing the amount of restoration business we did," he says. Doing this involved reducing the number of employees and shifting his business focus, but over a period of two years Pulley was able pull it off successfully. "Without the data I had, I could never have convinced anybody in the organization that the change would work."
Pulley uses a scorecard--which he says was "created out of necessity"-- in strategic monthly meetings with his managers. They review variables such as cash flow, gross profit, net profit, and bad debt. "It's a time when we compare actual to budget numbers, and we establish and revise goals and objectives," he says. That's important because he's also used unit economics data to set up a bonus system for employees. "We incentivize them based upon the numbers that we know are good. This helps the bottom line, and it promotes healthy competition among the employees," he says.
Measuring and tracking unit performance numbers helps franchisees connect with lenders. "When you talk unit performance numbers the bankers' eyes just light up," says Pulley. "You're speaking their language." He says the numbers are a direct reflection on you as a businessperson, and it shows them you know what's going on in your business. He says these practices help even if you already have a strong relationship with the banks.
Tracking and measuring unit profitability is an essential part of running a successful multi-unit franchise operation, says Pulley. "You don't want to wake up one day and ask, 'How did this happen? How did we get here?'"
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