IFA Benchmarking Tool Pares Down to Desired Performance Metrics
Benchmarking is the most frequently used management tool. The value of benchmarking is its ability to measure performance against a proven quantity—whether it’s another division, another company or a group of companies. Benchmarking gives great, valuable insight into performance, but if your company is conducting the analysis, the process can be labor-intensive. Identifying the metrics needed, finding peer companies and industry leaders willing to share their data at an acceptable price point, and then analyzing findings takes a significant amount of time and effort. With this in mind, and understanding the value of insight into franchise businesses revenue, growth, and cost position in the unpredictable post-recession economy, the International Franchise Association offers a benchmarking service online. OnTrack Performance Benchmarking for Franchisors is always accessible, easy to use, quick, free and pared down to the performance metrics that all IFA members, across lines of business, consider.
More than 220 franchisors from all sectors used OnTrack in the 12 months following its 2011 launch. The largest concentrations of users came from commercial and residential service franchisors (26 percent); personal service franchisors (13 percent); and automotive and retail products and services franchisors (11 percent each). Thirty-one percent of users are multi-brand franchisors, and 60 percent are multi-national franchisors.
Company-specific or identifying information is kept confidential, but biographical information about all users, in the aggregate, paints a portrait showing that the median OnTrack user:
Requires a $173,500 initial investment in each unit.
Has 200 total units dispersed among 150 franchisees and a median of one company unit and one international unit.
Gathered 1,558 leads from all sources for a cost of $118,826 to sign 17 franchise agreements.
Spent $46,457 on closing costs and more than three times that much on other sales expenses ($162,900).
Opened 13 domestic units in the preceding year, closed seven and transferred five.
Earned $636,000 in franchise fees revenue and $4,556,444 in royalty revenue.
Spent nearly $3.5M on operations.
Moved $70M in domestic sales.
Has 23 employees with one or two dedicated to each category of roles in finance, sales, legal, human resources, marketing, R & D, and executive or administrative positions.
In other words, the median OnTrack user is impressively efficient, productive, wealthy and resourceful. Of course, the median user is a fiction when the whole population of OnTrack users is considered. The most significant value of OnTrack is in the ability to measure against peers. There are peers of all stripes in OnTrack, so each user can define what types of business peers will give meaningful insight into whether spend, cost position or employment practices are on or off base. Consider the difference OnTrack filters make.
A Benchmarking Franchisor Profile
If a fictional and profitable 170-store “bodyshop” franchisor with one brand, 60 corporate employees and a 30-year history benchmarked against all OnTrack user companies, it would find its performance distorted and artificially deflated or inflated at different points, depending on the metric examined. For example, 68 percent of all OnTrack users are single-brand franchisors. The bodyshop franchisor, with one brand, fits in with the majority of all OnTrack users. But in its line of business, the bodyshop is an anomaly, since 75 percent of automotive repair, parts and services companies using OnTrack are multi-brand franchisors.
Compared to all franchise companies, the bodyshop would find its initial investment cost of $200,000 to be in the top one-third of all franchisors. For automotive companies, the story is different. An initial investment cost of $200,000 would mean that the bodyshop in question has the lowest initial investment cost of any company in that line of business by a significant margin. The lowest quartile required $50,000 more, and the median investment cost is just below $300,000.
With 51 corporate employees, employment by the bodyshop would be extremely high in almost all job categories compared to OnTrack users overall, more than double the median number of 23 employees, and nearly tied with the top quarter of all companies. With four IT staffers, six executive and administration employees, six advertising and marketing employees, and 10 in finance and accounting roles, the bodyshop would see itself ranked at the very top of the employment scale for each type of position. This would be cause for concern, if not alarm, except for the fact that the comparisons are meaningless when the defined peer group is overbroad. Without the benefit of accurate parameters, the peer data does more harm than good. OnTrack has a remedy for this. Its narrow, customizable filters ensure that the measurements consulted portray performance accurately.
Using OnTrack filters, the bodyshop can adjust its peer definition by line of business, size of business, amount of revenue and years franchising. If the bodyshop defines peers solely as automotive repair, parts and services companies, then the bodyshop would see that its 270 franchisees place it at the top quarter of its peers for that metric—an accomplishment that becomes more compelling considering that at 30 years old, the bodyshop is in the youngest 18 percent automotive companies. OnTrack’s metrics for Sales KPIs indicates that, with 3,812 sales leads, the bodyshop was in the top half for “leads from all sources” but in the bottom quartile for the cost of lead generation. Although the bodyshop employed many more corporate employees than the overall population of OnTrack users, employment was in line with peer employment for all metrics.
In short, the key to the bodyshop’s successful use of OnTrack is making sure that it measures against the right peer companies. For the bodyshop, and for all OnTrack users, this is an easy fix. The condition precedent, a deep pool of users in each line of business, depends on IFA franchisors using the tool. Since the value of OnTrack improves in step with the number of users, IFA sends monthly updates describing changes to the user population and encouraging participation. IFA members can begin using OnTrack any time at benchmarking.franchise.org.
Blaire Jones is the research coordinator for the International Franchise Association and the OnTrack administrator. Direct questions about OnTrack to Jones at firstname.lastname@example.org.