Imagine you are the boss of a lolly shop selling the most colourful range of fruit chews ever made. Orange and banana, lime and kiwi fruit, avocado and pomegranate, date and dragon fruit… What an incredible range!
In fact, that’s what the owner of your lolly shop chain, Ultimate Indulgences, is all about: licensing franchises to franchisees who will be the ultimate in lollies. You sell fruit chews. The franchise the next suburb over sells lollipops. The franchise in the Sydney CBD has the biggest range of fudge you have ever seen.
So, Ultimate Indulgences is a pretty special sort of chain, but not just because of its range and yumminess. It’s also because Wally Sweetstuff, the chain owner, has set some pretty high flying goals for his stores.
Wally Sweetstuff wants Ultimate Indulgences franchises to:
- be profitable,
- have the biggest range of their chosen sweet out of any store in the country, and
- increase the interest of consumers in exotic gourmet sweets.
For some reason, you rather like your fruit chew store and you would
rather like to keep it. However Mr Sweetstuff runs a tight ship and does not automatically renew the franchise licences when they expire every three years. At the end of your first term you scraped through and Wally grudgingly agreed to renew your licence based on your enthusiasm for your product and your profit (albeit relatively small). But he made it very clear that if you weren’t contributing to the company’s goals, you wouldn’t remain part of Ultimate Indulgences for a third term.
“But look at my huge range of sweets,” you said.
“Can you tell me how many more fruit chews you stock than any other store?” he asked, and you had to shake your head.
“And have you made people more interested in exotic gourmet sweets?”
But this time you know you have to have answers.
So you got organised early.
Profit was easy to report on – your accountant had it worked out well before you became the proud owner of this franchise. Incomings minus outgoings = profit. Your MYOB file is full of lists of daily earnings, rent payments, salaries, product purchases and advertising costs and every week your accountant comes in to add to these lists, reconcile the accounts and produce a neat little figure that represents your profit.
In fact, Wally Sweetstuff wanted his franchises to make $50,000 profit a month, which was a heck of a key performance indicator (KPI) to aspire to, but he was happy enough with your previous year’s profit which was $200,000 in total – you could work up to tripling that over the next term.
The other two were a bit trickier.
To determine whether you stocked more types of fruit chews than any other store required two types of data to report against this performance indicator. Firstly, how many chews did other stores stock and secondly, how many chews did you stock?
You had to do your research, by talking to your fruit chew contacts you identified the biggest other fruit chew stockists and your nieces and nephews were happy to go in and count what they could find in the other stores (for a fruity reward of course!). Not only that, but by talking to your stockists you were able to find out how many fruit chews in total were available, which gave you a few ideas for gaps you could fill exclusively in the future. So you established not only a benchmark for how many types of fruit chews you needed to stock, but what other ones were available and where the market gaps were.
It was easy to do a stocktake of what you had in your store and you were happy to discover that you only needed to stock another few types of fruit chews to beat the competition and meet your KPI. However, so valuable had the process been – so much had you learnt and so many new ideas you had come up with – you resolved to go through this stocktake and comparison on a monthly basis.
Then you had the last, trickiest goal to address. How to prove that you are making people more interested in unique gourmet sweets? At the time you first bought the franchise you had seen that ‘goal’ as a throwaway line, as something to somehow make Wally think he was contributing to society… Now, thinking about it, you can see how smart Wally, or a trusted advisor of his, has been.
To cultivate a taste for new sweets is about creating an ongoing market for any new products that you – or in fact ANY of the franchises – add to your stock. And it’s a great way of differentiating Ultimate Indulgences as sweet sellers from mainstream confectioners and supermarkets. This goal is about creating behavioral change and cultivating a clientele which seeks new products that only Wally’s sweetshops are likely to supply. It’s like an organisation that wants to make people more environmentally friendly or stop the consumption of fast food… The behaviour changes incrementally and over time and it is very hard to both measure the behavioural changes and attribute them to a specific action.
So how could you measure it?
You didn’t like the idea of asking every single customer who came through the door whether our store made them more interested in unique gourmet sweets – that would probably get annoying and you didn’t think it would be helpful in the short-term anyway. Trying to prove that YOUR store was making people look for more exciting sweets was tricky – and it was going to be hard to get a benchmark and ongoing, meaningful data about the number of people in the community whose interests might be influenced by your store.
So you broke down the goal a bit more and mapped out a path for meeting it. Firstly, the people within your sphere of influence would need to know that fruit chews exist and are yummy. Then, they need to know that it is possible to get a more exciting and yummy range of fruit chews. And finally, they need to WANT this more extensive range.
After giving this some thought it became clear to you not only the different groups of people you could reach with these messages, but also some possible ways of doing so. It also became clear that growing people’s demand for an extensive range of sweets wasn’t something that could be done overnight.
So instead of trying unsuccessfully to prove that you were growing demand for unique gourmet sweets in this next period, you decided that Wally would be happier knowing that you were on a trajectory toward meeting that goal. And you would be able to prove it from the metrics you would assign to the broken-down goals.
To prove that society knew more about fruit chews, you would pay for a small survey of people near to your store to be done each quarter to get a benchmark and then update on how many people know about fruit chews and how yummy they are.
To prove that society knows that a more extensive range of fruit chews is available you will track the number of people on a new newsletter emailing list you are setting up and also will start tracking how many mentions there are of fruit chews in the traditional and social media.
Then, finally to prove the long-term growth in demand for an expanding range of fruit chews, you will track your sales, the number of requests you get for new products, the number of regular customers you have through your new Lolly Lovers loyalty program and the number of your new ‘Candy Connoisseurs’ parties that get booked.
Funnily enough, going through the process of nutting out this logic and the supporting metrics laid out your business strategy for the next two periods. You figured that your path and metrics may not be perfect, but you’d adjust them over the next few years as you see how they go.
We’ll leave this example here for this week and leave you pondering how this will play out by the end of your next lease period and what Wally Sweetstuff’s response will be, but I’m interested in your thoughts.
What do you think?
Was this a good approach to identifying reporting metrics? Have you got an example of a time when sorting out metrics helped you refine your strategic plan?