Too often in the Franchising world we define stores only by their turnover – that’s a million dollar store, that’s a high $800k store that’s a $1.3 million store. It seems that success is judged by the turnover that the store achieves. And rightly so! On a store that has a turnover in excess of $1.3 million, they require a lot of staff, they need to produce a LOT of product and they handle a large amount of money, but really a high turnover store, if run successfully, indicates a good manager. What if it is run badly? The risk of loss is much higher both in dollar value and brand value.
Franchisee success to my mind should be judged on profitability, after all it is profit that helps you sleep at night, makes sure the kids school fees are paid and gets you away on those relaxing holidays.
Wouldn’t it be great if, when introduced by the Franchisor they said, “This is Joe; he makes $120K clear each year.” How would that build excitement amongst fellow franchisees? Wouldn’t that make the queue of people wanting to buy into Franchising much longer?
We ran three different franchises, each with a turnover of near $1 million, but each with VERY different bottom lines. In fact the lowest turnover store gave us the highest return in dollars. It was the easiest to run in terms of product procurement and staff retention. Sure it had the highest royalties, but even after paying the higher royalties the return to us in the hand was much higher in dollar value. We used the same management practices across all three stores and monitored daily all the major KPI’s of each store, yet in the end it came down to the business model.
Beware of people selling their store by their turnover only, it is an indicator of how busy you will be, of the size of business you will be operating, but not necessarily the amount of money you will be taking home at the end of the day. Remember, turnover is only VANITY, profit is where you will gain your SANITY!