LOG IN

MENU

FIND A FRANCHISE

Home > FranBlog

KPIS: ARE YOU MEASURING THE RIGHT

THINGS?

Category
Operations & Training

By Roger McCoy, CFE

To gain a better understanding of the use and perceived effectiveness of KPIs by franchisors, I
developed a detailed survey as part of my PhD in Franchise Management. The survey consisted of
19 statements related to their size, age, industry and their use of KPIs within their organization.
Four types of KPIs were evaluated and described.

Financial – relate to details included in financial statements. Examples are: Gross Margin,
Overhead Expenses, Departmentalization, Balance Sheet Ratios. As a franchisor, tracking only
Revenue would not qualify as a Financial KPI.
Operational – relate to items used to measure operational performance, but not commonly part
of financial statements. Examples are: Average Sale, Sales Per Employee, Conversion Rates,
Employee Calls Per Day.
Customer Satisfaction – relate to customer commitment. Examples are: Net Promoter Score
(NPS), Customer Retention, Satisfaction Improvement, Repeat Customers, Complaints and
Resolution Time.
Employee Satisfaction – relate to employee motivation and commitment. Examples are:
Turnover Rate, Employee Productivity, Employee Complaints, Recruitment Costs.

The statements were designed to determine the level of use of these types of KPIs by starting with
the most basic statement of whether they have been established. Each successive statement
suggests the greater level of commitment within the organization including statements of whether
they were promoted, trained, tracked, and reported; utilized in decision-making by the franchisor;
their level of usefulness in group success; franchisor opinion of the KPI use and effectiveness by the
franchisee; and the level of input by the franchisees in the KPI development and maintenance.

The survey was emailed to approximately 4,000 franchisors in North America.

Survey Responses

The most basic statement was: “We have established KPIs for our franchise system” of the four
identified types. “Highly Agree” would suggest a firm commitment. “Agree” would suggest at least
some effort has been made. The other three options suggest KPIs have not been consistently
established. As we progress through the survey, a greater involvement and commitment to KPIs
could be demonstrated. KPIs couldn’t be “tracked” if they hadn’t been “established.”
As an example of the consolidated responses, the first statement is shown in Figure 1.

Figure 1 – Consolidated Survey Responses Example

We have established KPIs for our franchise system.

HIGHLY HIGHLY
DISAGREE NEUTRAL AGREE
DISAGREE AGREE

Operational KPIs 0.00% 20.93% 11.63% 37.21% 30.23%

Financial KPIs 0.00% 8.14% 6.98% 48.84% 36.05%

Customer Satisfaction
0.00% 26.44% 12.64% 34.48% 26.44%
KPIs

Employee Satisfaction
0.00% 33.33% 33.33% 18.39% 14.94%
KPIs

Of those responding, 67 percent, 85 percent, and 61 percent indicate they agreed or highly agreed
with the statement related to establishing operational, financial, and customer satisfaction KPIs,
respectively. This indicates they have started the KPI process. Significantly fewer agree to have
established employee satisfaction KPIs at 33 percent.
Figure 2 – Consolidated Positive Financial KPI Response Summary (agreed or highly agreed)

Key Word Survey %

Established 85%

Promote 85%

Train 77%

Track 83%

Report 75%

Descriptor Survey %

Provide Software 64%

Franchisor Decision Making 86%

Franchisee Decision Making 75%

Franchisee Input into KPIs 55%

Higher Franchisor Performance 76%

Higher Franchisee Performance 61%

Figure 2 shows 85 percent of franchises have established KPIs for their organizations. And to lesser
extents they promote, train, track and report them. They also report that KPIs are used in decision
making to a great degree (86 percent). And that the franchisors believe they motivate higher
system performance (76 percent). Franchisors suggest that franchisees have a lower opinion of
how KPIs increase performance.

Recognize the statements related to franchisees higher performance and whether KPIs are used by
franchisees in decision-making, were answered by the franchisor only, and could suggest a
difference in perception of perceived value between these two groups.

The franchisors report that only 55 percent allow their franchisees input into the KPI creation
process. This could lead to dissatisfaction and detachment among the franchise group.

Broader Comparisons

To allow comparison of KPIs for various franchisor demographics; such as group revenue, number of
locations, years in business, and industry type; we “normalized” the responses by computing the
weighted average of each response. Each response choice is given a point value: Highly Disagree –
(2), Disagree – (1), Neutral – 0, Agree – 1, Highly Agree – 2. The resulting Weighted Average is
multiplied by 100 to provide workable numbers. The highest possible score is 200, all Highly
Agree. The lowest possible score is (200). An all Neutral response would result in a score of 0.

If we review the progression of the weighted averages of the responses, we can evaluate the
franchisors’ commitment to KPIs, by KPI type.

Figure 3 – Summary of Weighted Average Performance by KPI Type

Key Word Operational Financial Customer Employee

Established 77 113 61 15
Promoted 84 108 74 20

Trained 67 93 54 2

Tracked 55 97 43 (23)

Reported 24 82 16 (41)

Descriptor

Software Provided 37 54 (7) (59)

Departmentalized KPIs 13 34 (30) (52)

Franchisor Decision Making 76 110 55 (7)

Franchisee Decision Making 46 75 32 (3)

Franchisee Input to KPIs 14 23 (10) (28)

Franchisor Performance 84 105 67 9

Franchisee Performance 44 55 33 (8)

Clearly, there is a significant decline in operational commitment from “established” to “reported”
in all KPI types, with some averages actually going negative in the progression. The key statements
related to whether tracking KPIs results in higher performance and their use in decision-making
show a significant difference from the franchisor versus franchisee perspective.

Conclusions

The survey suggests strongly that franchisors agree that tracking KPIs lead to higher system
performance. Even though the great majority of franchisors report KPIs are important within their
organization, a detailed look by KPI-type suggests that financial KPIs are tracked to a much greater
extent than the other three. This can be partially explained by the franchisor’s need to collect
system revenue totals to facilitate royalty computation and collection.

Operations, customer satisfaction, and employee engagement KPIs are less established and
tracked. Figure 3 suggests that rather than the overall franchisor apparent KPI commitment
suggested in Figure 2, customer KPIs and to a greater extent employee KPIs, move into the
negative areas in some cases. This suggests a lack of commitment for these types of KPI tracking.

Despite the general results showing a high commitment to KPIs by franchisors, much can be done
to improve customer and employee satisfaction KPI tracking and reporting. And they’re directly
related. Engaged employees can lead to satisfied customers. Tracking financial and operational
KPIs, though important, are not enough to fully monitor system performance.

Roger McCoy, CFE, is a Senior Franchise Business Consultant for Direct Energy. He has been involved
in franchising since 2004 and is a U.S. Army Veteran. He recently completed his PhD in Franchise
Management. This article is an abridged version of a PhD paper. Find out more
more.
We use cookies on this site to enhance By clicking any link on this page you are giving your
your user experience consent for us to set cookies. MORE INFO
OK, I AGREE NO, THANKS