Franchisees Must Ponder the Great Chain of Being (Analytical)

ItsyourturnRetailers have been tracking traffic and measuring conversion rates for decades, but are franchisors and their franchisees on the same page? And if so, who pays for it?

Author Mark Ryski, CEO and founder of HeadCount, says, “I see a consistent disconnect between franchisors and franchisees when it comes to analytics, especially store traffic and conversion analytics.”

As the only full-service point of sale (POS) provider — from software development to franchise incubator to ongoing support — part of Sintel’s commitment to our customers and industry is to share ideas and information. Whether you’re a first-time franchise hopeful, a small business owner or an established chain, it’s always smart to stay on top of the latest thinking in analytics to achieve financial success.

Here is a summary of many of the salient points in Ryski’s article, “Store Analytics: Franchise Networks Should Act More Like Chain.”

• Ryski believes that retailers who leverage the analytics effectively have an “insight edge,” and consequently a competitive advantage over retailers who do not.

• Over the last 10 years, Ryski’s consultancy with franchise and dealer networks in wireless, general merchandise, electronics, home improvement and automotive segments led him to conclude that, regardless of the franchise network, there exists a consistent disconnect between franchisors and franchisees when it comes to analytics, especially store traffic and conversion analytics.

• “Unfortunately, most franchisees don’t track traffic or conversion rates in their stores — not necessarily because they don’t see the value in the metrics, but rather because they can’t come to terms with who should pay for it,” writes Ryski. “Chains don’t have this dilemma,” he notes. “There is strength in networks, but the lack of coordination on important areas such as traffic and conversion analytics puts franchisee networks at a competitive disadvantage.”

• For franchisees, the benefits of traffic and conversion analytics, according to Ryski, include the following:

– Traffic volume is a key metric that defines the sales opportunity in your store and helps a franchisee know “what’s possible.”

– Conversion rate is a sort of “batting average” which measures how well a franchise store is doing in terms of “converting” a store visitor into a buyer.

• Hence, traffic volume and conversion rates are two simple metrics that can provide insights that may help franchises accomplish the following:

– Improve sales performance by focusing on customer conversion

– Optimize payroll expense by minimizing over/under staffing

– Measure the impact of local advertising and promotional activities

– Measure the impact of local merchandising, training, and store design programs

– Hold store staff accountable for results, even when you’re not in the store

– Understand long-term traffic and conversion trends to help more accurately plan and forecast business

• Ryski’s formula to determine the sales increase or decrease, based upon traffic and conversion, is simple enough: Traffic Rate X Conversion Rate = Sales 

• Ryski points out that he has authored two books on the topic that provide plenty of detail about the reasons that all retailers, regardless of size or category, need to track store traffic and conversion rates. “Franchisees shouldn’t believe that just because they are part of a network that these metrics don’t apply,” he writes. “They do, just as they do for any retail store.”

• For franchisors, traffic and conversion analytics have significant value in helping create more effective and efficient programs and, ultimately, a more competitive and successful network. As examples of programs where analytics may provide a critical context for assessing true value, Ryski mentions national marketing programs, training to mystery shop, and merchandising.

• Other uses by franchisors of traffic and conversion data include:

– Understanding how dealers are performing relative to their traffic opportunity

– Identifying underlying sales drivers to better assist dealers

– Developing store performance benchmarks and best practices

– Measuring the impact of new merchandising, training and store design programs

– Planning for special events and holidays

– Identifying regional and broad market trends, including impact of competitors

– Spotting long-term trends to better forecast demand

• As to the “Who pays?” question, Ryski sees both franchisor and franchisee benefitting from the traffic and conversion data. “Since there is value to both the franchisor and franchisees, it makes sense to share the expense,” he writes. “Creating a cost-sharing model is not complicated and can be tailored to fairly meet the needs of all stakeholders. The most successful franchise programs I’ve seen recognize this shared value, and both parties share in the cost and the benefits.”

• Ryski believes that, for most network-wide programs, it makes sense for the franchisor to drive the needs assessment and vendor selection process because franchisors have the expertise and resources to compare options and negotiate the best rates on behalf of the entire network.

 • In cases where a franchisee fails to see value, Ryski says don’t force compliance; instead build a meaningful index. “Even the best franchise networks can’t get 100% alignment with franchisees on every initiative — even for something as useful and important as traffic and conversion analytics,” he writes. “The goal should be to get a representative, national sample of stores from which a meaningful index can be built.”

• Ryski knows that launching any new program can be a challenge. “But when you consider the potential value to the entire network in undertaking a comprehensive traffic and conversion analytics program — or at least in a meaningful index of stores — the benefits far outweigh the effort.”

“The fact is, there’s tremendous value in traffic and conversion analytics for both the franchisor and franchisee,” Ryski concludes, adding, “It’s in the best interest of both parties to coordinate their efforts on it.”

Read Mark Ryski’s full post here.

For more insights into analytics and enterprise resource planning (ERP), check out our related posts, Point of Sale Integration With Enterprise Resource Planning Is Changing the Face of Retail, Are You Ready for Enterprise Resource Planning, and Make No Small Plans: 8 ERP Trends in 2014.

Just as we share our vast point of sale experience and expertise with startup owners in order to help them make the best decisions from the very beginning, we at Sintel Systems are happy to share articles, advice and commentary about the retail restaurant market.

If you are interested in learning more about Sintel’s POS systems and how our knowledge and support can impact your future success, call us for a complimentary phone consultation.

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