Transforming your business profitability with the ‘Power of Ones’
In an environment of ever-increasing competition across all markets in which franchise businesses operate, there is great value in recognising the many small things that franchisees can do that can add up to a big difference in their financial performance.
Here at Avatar Consulting, we ask our customers three important questions, all of which highlight what we like to call ‘The Power of Ones.’
Could you increase your sales by 1%?
Could you improve your margin by 1%?
Could you reduce your operating expenses, or increase efficiency by 1%?
We’ve never had a franchise say no to any of these questions. One per cent is always achievable, right?
But what you, like many of our customers, may be shocked to discover, is that all of these ‘ones’ combined can increase your franchisee’s profitability by an impressive 26 per cent (on average).
Understanding the key financial figures that underpin your business can empower you to make decisions with confidence and accelerate you on the path to ongoing profitability and growth.
Boosting your franchise’s profitability can be as simple as improving your understanding of your KPIs, using the Four Forces method, comprising of Thrust (Sales), Lift (Costs of Goods Sold + Margin), Weight (Operating Expenses) and Drag (Labour Efficiency)
Thrust
You need thrust in business to get off the ground. Thrust is what we’re able to generate through sales
Lift
Lift in business comes from your margin. Too often people make sales but with a low margin and it doesn’t work. Your gross margin needs to be right.
Weight
The weight in your business is your costs (operating expenses)
Drag
Drag is the labour efficiency or lack of productivity (inefficiency).
What this means
When your cost and inefficiencies are greater than the impact of your sales and margin, your business will make a loss.
If your cost and inefficiency are equal to your sales and margin, you’re breaking even.
If your sales and margin are greater than the impact of costs and inefficiencies then you’ll make a profit. The more your sales and margin get above your cost and inefficiency the more profit growth you will see in your business.
Unfortunately, too many franchisees are consumed with confusion around basic issues of financial management and the number one equation that they usually don’t know is their breakeven point.
Understanding breakeven
The breakeven formula is one of the most powerful financial management tools for any franchisee.
Not only will the breakeven formula calculate the sales required to cover a certain level of fixed costs it can be used to calculate a specific range of targets in order to release the sought profit required.
Harness the power of breakeven by using our Target Driver Analysis; a powerful tool that provides a clear understanding of the goals that your business needs to achieve breakeven and the desired profit targets.