In this blog I’m going to talk about how to waste less time when thinking about the success of your franchise business. Sales and expenses are a fact of business life – by the end you’ll understand which one matters most and why.
Profit is not a complicated concept. It is what’s left over of your income after you’ve paid out all your expenses.
But if you want to increase profit which of those two things should you concentrate on more?
Income or expenses?
It’s simple mathematics that increasing sales or decreasing expenses will both increase your profit.
But one will have far more impact than the other.
If you think about it, you can decrease your expenses by no more than 100% can’t you? If your business telephone bill is £300 a quarter, then the maximum you can reduce it by is £300 a quarter.
So the maximum you could increase profit by from reducing your telephone bills is £300 a quarter.
That’s great, but it’s hardly going to set the world alight.
Reducing expenditure (or at least controlling it) is clearly a vital skill in creating a successful business. But someone much cleverer than me once told me that cost control was essentially insolvency insurance.
By watching the pennies, the business is far less likely to find itself incapable of paying its bills as they fall due.
However, not going under is not the same as business growth or business success. To really make a difference you need to concentrate on sales.
The thing about sales is they have what you could term “unlimited upside potential”. In other words, unlike costs there is no limit to what can be achieved.
That makes the sales figure a far more powerful driver of business growth than any of the cost numbers.
And in a franchise business that’s a really useful thing to know. Your opportunities for significant cost reduction may be limited because a big chunk of your cost is outside your control isn’t it?
However, you have just as many opportunities for sales growth as any other business.
Ok, maybe the price you charge is controlled from above but the other “sales drivers” are all things you can directly influence.
I’ll talk more about sales drivers in another blog, but what I mean are all those factors that together influence your sales figures. So you could think about things like:
- Quotes issued vs quotes requested
- Quotes converted to customers
- Number of customers
- Average spend per sale
The list goes on and is different for different businesses.
So when you are thinking about how to grow the business, start thinking about those sales drivers which you can control because that’s where the growth opportunities are.
Keep a close eye on costs because that really matters but sales is where the real opportunities lie.
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‘The Five Biggest Problems Stopping Franchisees Making More Money – And What To Do About Them’
Chris Martin is a chartered accountant and business advisor and has been helping franchisees create and grow wonderful businesses for over 20 years. He is a published author and has written extensively on franchisee tax issues. He passionately believes that whilst franchising is a deservedly successful business format, franchisees are often let down by their franchisors’ failure to offer support and guidance regarding the financial side of running the business. This leaves franchisees frustrated, overwhelmed and unable to grow their businesses to the extent they should. Chris has developed simple systems, support and guidance to ensure franchisees create businesses that provide them and their families the lives they so richly deserve.