KPIs to Track in the First Year of Franchising

Key performance indicators (KPIs) are measurements used to analyze the performance of a company or organization. Monitoring the success of any franchise includes using KPIs to determine which activities are working and those that are not. There are specific KPIs that all franchise owners should evaluate in the first year of business.

Cost

Cost is the most critical KPI to evaluate due to the importance of staying on budget. Many businesses fail in the first year because they overspend on inventory, equipment, furniture, repairs, and other expenses. It is necessary to reduce the production and operational costs of running a business in any department.

Cost Of Goods Sold

The cost of goods sold is the monetary value of the goods that are purchased, placed in inventory, and then sold. Any discounts or modifications are included in the cost, along with labor, materials, and supplies.

Profit

While reducing costs, franchise owners should keep an eye on their net and gross profit margins. No business wants to spend a lot of money on goods without knowing the amount of profit generated. Profit must be compared with the expenses.

Line of Business Revenue vs. Target Revenue

In the first year, many franchisees tend to overestimate revenue and profits and underestimate expenses. It’s difficult to predict the success of any business just starting up. Franchisees must have a realistic grasp of the potential revenues for a business just starting out in their particular industry. Many franchise owners are overly optimistic about how successful they will be; however, this can lead to trouble down the road.

Line of Business Expenses vs. Budget

It’s important to compare actual and predicted costs. Every company has overhead costs required to run the business and a forecasted budget that predicts the amount of money needed. Comparing actual expenses to what has been budgeted helps business owners know how realistic they are in developing their financial plans.

A business is more likely to fail in its first year than any other time. Every franchise owner should review standard key performance indicators to ensure they are successful during these critical months. Defining the right KPIs from the start is necessary to prevent financial disasters that can occur during the first year.

Article originally published on The Tutoring Center’s blog.