We spoke with Ryan Hicks, President of Modrn Business and host of the Modrn Business Podcast, to give us some tips about the modern world of franchising.He sums up his top three pieces of advice as:
- Know your numbers
- Incentivize your team
- Leverage technology to enhance experience and get customers back in the door
Let’s break these down.
Know your numbers and make a restaurant business plan
The first major question to answer is: how much is this going to cost? Franchises charge licensing fees to owners for the use of their brand. That is after the prospective franchisee has passed the evaluation process, which in many cases involves a hard look at the prospective owner’s books. Having a well-thought-out restaurant business plan is key to this process.
No matter the intention with which someone gets into the restaurant business, it is indeed a business, and profitability is the number one most important thing. The sum gleaned by calculating the profit margin, “total revenue minus expenses”, is vastly more important than raw revenue. Setting revenue goals is important, but a big revenue number is useful only as bragging rights, the true measure of a successful business is how that revenue stacks up after expenses are deducted.
The largest costs for restaurants are labour and food. As a franchisee, you’re stuck with the food cost of the vendor approved by the franchise you’ve licensed. It is always to the benefit of the franchisee to read the fine print of their agreements with all their vendors to ensure they are being treated fairly, but generally franchisees don’t have a ton of flexibility over their food costs.
Labour costs, on the other hand, allow for more franchisee control. While franchisees must obey local minimum wage laws, they can increase wages in an effort to woo new staff and keep on existing ones. Any change in wages must be factored into profit margins, which could take a hit initially, but the benefits of a happy workforce are obvious. Per Ryan, “I always like to say “hire for enthusiasm” and the rest will follow.” He reminds owners that their brand image lives on the front lines, “So invest in your people and make them your strategic advantage and watch how that helps your profitability.”
Incentivize your team
Other than increased wages, how else can a franchisee incentivize their team? Like all good business owners, Ryan is always thinking about how to apply best practices, especially those he’s seen bring success to restaurant owners and brands. He related an anecdote from his mentor:
“You have to build a business that can operate without you. In order to do that you have to empower your people, know the numbers, deliver world class service, and innovate constantly.”
Ryan’s mentor, one of the world’s largest franchisees, pays out incentives to his employees every 28 days. For example, if a store manager achieves a 36 percent profit margin and obtains an incremental sales growth, 10 percent of the incremental increase in sales is paid in bonuses to assistant managers on up. For the business owner this is a small amount, but for the employees it is a massive benefit, especially when compounded over time.
Leverage technology and avoid pitfalls of employee supervision
“It’s important to note,” Ryan says, “that technology exists first to make customer experiences better and second to improve operators’ efficiency and bottom line.”
He speaks to the current trend of gamification as only valuable if it increases profits. Ryan was consulting with an emerging franchise brand that had dumped hundreds of hours into a gamification component that “will only touch a tiny number of their customer base.”
Instead of wasting on-site time with employee supervision, Solink allows for owners to search and save moments culled from thousands of hours of video to identify anomalies in transactions or highlight moments of customer success.
For anyone in the world of franchising, from beginners to veterans, taking advantage of the culture of franchising is the most important lesson. Ryan calls the atmosphere of the franchising community “coop-etition.” He advises that franchisees attend conferences like IFA’s annual convention. Educate oneself as much as possible: to anticipate needs, learn from others, and grow your business into what you want it to be.
No franchise is complete without Solink: the powerful new tool revolutionizing how business uses video!