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Key data to monitor franchise profitability in 2024

A franchise's growth and future depend on the performance of its network of franchisees. How can we improve the collection of data that impacts restaurant margins, and provide franchisees with reliable profitability KPIs?

Sophie Gaaloul

Sophie Gaaloul

14

Feb 2024

Material costs and key data to drive franchise profitability in 2024
In this article :

A franchise's growth and future depend on the performance of its network of franchisees. If a franchisee's results don't match the expectations set out in the business plan, they are less likely to renew their contract, leading to high turnover. What's more, with a 21% increase in insolvencies in the restaurant sector in Q3 2023, franchisors are placing greater emphasis on improving the monitoring of key performance indicators to effectively guide their franchised restaurants. 

Against a backdrop of falling volumes, cost inflation and reduced customer spending in the fast-food sector, relying solely on sales is misleading. So how can we improve the collection of data that impacts restaurant margins, and provide franchisees with profitability KPIs? 

Let's take a look at the data that counts when it comes to steering the margins of your restaurant or bakery network.

How do you calculate and monitor your material costs for a reliable margin?

The cost of raw materials represents a significant proportion of a restaurant's expenses. Effective control of these costs helps maintain a higher profit margin, essential for the financial viability of franchisees.

The sharp increases linked to inflation are certainly behind us, but raw material prices will always be subject to market fluctuations, and are unlikely to fall. The franchisor's promise is to offer the franchisee all the keys to making his or her establishment more profitable than an independent restaurant . The franchisor defines the target material cost that the franchisee must achieve, and gathers data to compare franchisees' material costs with the rest of the network.

When margins are tighter, it's crucial to manage your material costs to the letter. And to do this, you need to calculate your actual material cost, monitor it and compare it with your theoretical material cost, which implies devoting time to it, or having a tool like Inpulse that provides rapid access to this data.

‍What istheoretical material cost?

The theoretical material cost represents the cost required to produce a restaurant's dishes under ideal conditions, in full compliance with the recipe sheets, without loss or theft. It is essential to calculate this cost when creating a dish, generally on a portion basis.

What is real material cost?

The actual material cost of a restaurant over a given period comprises total expenditure on raw materials and the change in inventory over this period. An increase in inventory indicates lower consumption than expenditure, while a decrease in inventory indicates higher consumption. This inventory variation is crucial in assessing actual raw materials consumption.

How do you calculate real material costs?

Precise monitoring of raw material costs is the first step towards identifying any malfunctions impacting margins, and initiating continuous improvement of operational processes.

So how do you measure the material cost of your network? 

Whereas real material costs change every day, depending on stock issues, supplier price fluctuations, actual consumption by preparation staff, food waste, breakage...

Can you wait a month or more for the balance sheet to assess your outlet's margin? Many franchisors have understood the need to access reliable data in real time.

‍Inpulse gives you access to a Material Cost dashboard with all the key data you need to quickly spot malfunctions in the field. Compare the evolution of material cost in correlation with sales, spot the most profitable dishes or on the contrary those whose material cost has increased. These anomalies can be identified thanks to this dashboard, which aggregates data from all points of sale, enabling franchisors to carry out in-depth investigations usingInpulse's complementary analysis modules.  

With this data, network heads are in a position to identify margin discrepancies and understand them, so as to provide your franchisees with the best possible support. Make informed decisions thanks to reliable data centralized by Inpulse.

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What other profitability indicators should you measure for your network?

It is essential to collect this data in the field, so that decision-makers can focus on analysis and effectively manage the profitability of their branches or franchise network: 

Quality and easy access to this data make all the difference in making the right decisions.

What KPIs should franchisees be provided with?

There are many other indicators you can track to measure your network's performance, and we've compiled a checklist of "20 key indicators to provide to your franchisees", which you can download here.

Based on this list of indicators, the head of the network needs to set targets and enable franchisees to track their progress within the network, so that they can compare their KPIs with those of other franchisees.

In conclusion, to achieve effective monitoring, standards must be set and field operatives must be encouraged to be more rigorous. Here you will find our best practices for inventory feedback or sales sales forecasting.

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To go further

More than 2,000 restaurants and points of sale use Inpulse every day