Loading...
Fran Metrics Founder, Jason West McReynolds Reveals Top KPIs for Franchises
Written by: Patrick Findaro
This article is based on a video originally recorded on Vetted Biz Youtube Channel
Patrick:— “Patrick Findaro here, co-founder at Vetted Biz, excited to have on Jason West McReynolds, who’s the founder of Fran Metrics, a software company that helps franchisors in a lot of different ways, including how they collect all the data that goes into their franchise disclosure document and, in particular, that Item 19, that allows them to show financial information. He has over 30 franchisor clients, representing well over 1,000 locations throughout the United States. So, at Vetted Biz we’re all about data, and we were talking before offline just how we’re synthesizing a lot of information from franchise disclosure documents, other public resources, third parties, and making it easy for people to consume that information. So, I had just reached out to Jason based on his profile, and I was familiar with his company, Fran Metrics, and thought he’d be a great guest to have on our podcast. Jason, thanks for being on.”
Listen to this article
Jason:— “Well, thanks for having me. Excited.”
P:— “So I didn’t mention, but you were the CFO of a pizza franchise before starting Fran Metrics. I would love to just…if you could share with the audience how you got into the franchise space and then what prompted you to start this software company.”
J:— “Sure. Yeah, my background was accounting and business management, and so I started my own business, basically my first one, when I was 15. And, you know, I was friends with some of the other people in the pizza company. So, our biggest pain point, and it was, you know, it was quite a while ago, was collecting data. And for me as a CFO, not having the data was, what am I doing here if I don’t really know where the problems are? “
P:— “You’re making half-baked decisions, probably, like-”
J:— “Well, you know, somebody would say, okay, a CFO’s responsible for what their company’s doing, the franchisor entity, right?”
P:— “Yeah.”
J:— “But that’s— I mean the honest truth is, for a franchisor, the success of the franchisor is totally dependent on the success of the franchisees. You know, I can tell you what will make a franchisor unsuccessful profitably is having franchisees closed, or be unprofitable, or be disgruntled. What’s more important, the franchisees are successful, the franchisor’s economics work out automatically. More sales…”
P:— “Yeah. I mean, you get that royalty and you just grow that royalty stream.”
J:— “Yeah. So our pain point was, like, we don’t have a validation of our profitability. We don’t have a system to support franchisees when they need it. And at the end of the day, we really gotta start with the franchisees, so that was the problem. That was a nightmare. We weren’t engaging with the franchisees, and that’s why I said, okay, to hell with this, excuse my language, I want to go out and solve this problem that’s needed in the franchise industry—”
P:— “And I imagine it’s tough to streamline, like, when you’re looking at unit level economics on the franchisee level, because these aren’t professionally run organizations. I mean, if you have a U.S. business that’s doing less than a million dollars in revenue, you have some cost there that wouldn’t be there if it was a more professionally run, larger business. So, I imagine that kind of made your job as CFO kind of okay, is this the wife’s car? Does it need to be on the— Does this cost actually need to be here? Is it based on our pizza business? Or is this more a pseudo personal cost that they’re roping in here? »”
J:— “Sure. And believe it or not, that’s the first conversation we have when we set somebody up at Fran Metrics. One of the first ones is, like, we’re going to define a term and we’re going to call it operational cost. It’s going to have this chart of accounts. And these are the things that you say, this is what this business needs to run. And then there’s this other set of accounts in here that, okay, that’s fine. They can tell the taxman this or that, but this has nothing to do with their operations, and…”
P:— “And that can be 100% legal if you have an Audi and you have a real estate property management business, and you need to visit your clients, and you have to pay for premium gas, there’s nothing wrong with that, but is that necessary to operate a business?”
J:— “So here’s the difference. So first of all, in each business model, some of the ones that would be considered operational costs might be different because, as you said, maybe a car is needed. But let’s do something that’s an actual, legitimate business cost that we would take out. Like, let’s say they take their employees out to a meal and their employees deserve a meal, they’ve been working their butts off and they deserve a meal. That’s great, and they should do it, and the franchisor, shouldn’t say, Don’t take care of your employees. » But if you have one franchisee, who’s taking their employees out every week and one that’s never doing it, how are we going to benchmark those against each other and get data that’s actually actionable and makes sense? And we don’t want to discourage them to take their employees out. We’re just saying, Listen, tell the tax guy that it’s a legitimate write-off, but we’re taking it out just so we can put this in our disclosure document. » And our disclosure document, we can say we take out meals because they don’t need it to run their business.”
Item 19
And if you do it, you can, but that’s still an accurate disclosure with a reasonable basis. It meets the requirements for Item 19. And you say, Yeah, we didn’t include these, and here’s why we didn’t include these. » You don’t have to do this. And so it also makes the economics look more favorable to the franchisor when you’re removing those accounts, which, it should, because, again, they don’t have to do it. So that’s how we look at it in our reporting. Again, you know, it’s not just for the franchisor’s disclosure, but also support the franchisees as well. It’s twofold because you gotta get franchisees’ buy-in on this too. So it’s one thing to just say, Hey, you know, we want to sell more units. So you give us your data and do this for us. » That’s not a really compelling argument to make to a franchisee. Yeah, I don’t want to…”
P:— “No. Let’s help you make more money by benchmarking your cost so we can…”
J:— “Right. Let’s give you data…we’re going to give you data to show where you have room for improvement to make your business more profitable and more successful. We’re going to give you this. This is a tool that we’re going to use to help your performance out. We’ll recognize when you have an issue. We may even reach out to you if we see something. We’re here to support you, number one. It is twofold. I mean… But, you know, you need to get franchisees’ buy-in. And this is for some of the more established franchisors that have been around for a while.
This has, like, been always my biggest challenge, that’s why I typically work with new and emerging franchisors is because these ones that have been around forever have not updated their agreements and have not got the buy-in from the franchisees.
Jason West McReynolds reveals Top KPIs for Franchises
Because in order for this to work, the franchise agreement cannot say, Please send us your financials every month. » You know, they’re going to mail them in or send them some Excel document. You have 100 and some odd franchisees sending you spreadsheets and paper. I mean, could you imagine this landing on somebody’s desk and making heads or tails of it or consolidating it for… You know, and they try. I mean, the ones that used to do it before the technology was there would actually try this, but you’re talking days and days and days of work.”
P:— “ That leads to the majority not even doing it, they try, and a lot of them probably fail, or it’s just like a huge administrative cost. And they’re like, You know what? We’re not doing Item 19. »”
J:— “They give up on Item 19, or they have just selected stuff that they can get from other methods, like, you know, obviously royalties are reported, so they have the top-line revenue, or they’ll have… Or maybe they know…they have to get the numbers from all the suppliers so they have the cost of goods. And then they have to stop there and they’re like, That’s all I can do. » And—”
P:— “Yeah, I mean, top-line revenue is awesome, but you could be—”
J:— “Doesn’t say anything.”
P:— “—crazy amount to acquire those customers. And it’s, like, wildly inflated.”
J:— “Right. And it doesn’t really mean anything, like who cares?”
P:— “Yeah, one franchisee that’s spending a crazy amount on Google ads or Facebook ads. And that can, like, throw off the whole thing.”
J:— “Yeah. I mean, it doesn’t tell a franchisee what their profit potential is. It only tells them what the revenue potential is.”
P:— “At the end of the day, like we’ve done different research and polling, and it’s payback period. When can I get my money back?”
J:— “Right.”
P:— “And then what’s the owner benefit? So, if you have all the expenses that…and the sales, and, like you said, you show what really is required to run the business, then it’s more on you if you want to add back in other things.”
J:— “Right. Exactly. And so, yeah, so typically the way we approach this is we say, We want to figure out some KPIs for your company. We want…» There’re three qualifications, they have to be important, okay, to the franchisees’ success, unit-level economics, or unit-level performance, whatever you want to call it. They have to be accurate and make sense across the board. And they have to be actionable, right? That’s the thing that provides value to the franchisee. So if they’re not important, accurate, and actionable, then they’re not a KPI. And we say that our opinion is that this is a much better way if we create a scorecard with KPIs than a profit and loss statement, which is full of unactionable data. It’s a good look back tool to see how much you made, but if you’re really trying to pull the actionable data in…”
Watch the rest of the interview on our YouTube Channel,
Or find more articles about the Business Services Industry on our portal
