I once operated a bakery cafe where we made all our pastries from scratch. Because our top-seller was apricot danish, we kept a large stock of tinned apricots. One evening when reviewing our supplier invoices, I noticed we were buying more tins of apricots, which was strange as I knew our sales of apricot danish had remained pretty constant.
The following day I instigated a team search for the missing tins of apricots, and also introduced weekly stock takes and closer monitoring of our ingredients usage. While I never found those apricots, the usage of apricots magically dropped, as did our overall Cost of Goods, by nearly 1%. This generated an extra $9,000 in annual net profit. To achieve this by working harder we would have had to sell another $60,000 — equivalent to making an extra 67,000 danish pastries!
This incident taught me the value of using systems and monitoring metrics. It was also a powerful reminder that seemingly small amounts of regular theft can have a large cumulative impact on the profitability of a business. I learned that lesson 30 years ago. Or did I?
From stock takes to “sock takes”
This morning I was struggling to find a suitable pair of socks, a puzzle as I am regularly given socks as presents. It occurred to me our puppy, Leo, has been recently running off with the odd sock from the laundry basket, and goading us to catch him. While this new habit has been driving my wife nuts, I’ve just laughed it off as a harmless game. Leo has an old cardboard box at the back of the house where he keeps a stash of gnawed bones, chewed sticks, bits of rope, torn up toys, and, as I have just discovered, an impressive collection of my socks.
Habits are the small things we do regularly without conscious effort. When these habits are repeated over time, the consequences can be more powerful than we realise. It is interesting to note how the beneficial effects of healthy habits are often harder to notice than the harmful effects of bad habits. My wife’s good habit of making Leo sit and wait for 5 seconds before he eats his dinner probably contributes many subtle benefits to his character. My bad habit of letting him steal the odd sock, has clearer negative consequences.
Whether we’re dealing with the theft of apricots, socks, time or money, what may seem like small, harmless actions soon add up. This also applies to positive habits such as cleaning as you go, monitoring your performance against a particular number, or asking each customer if they’d like to try your latest product. Some people call these the “one percenters” — the small things that, when practiced consistently, add up to create breakthrough results.
Beating the scourge of “margin compression”
With profit margins in most industries being squeezed by increasing costs, and flat prices and sales, the positive habit of regularly collecting and monitoring metrics is now more important than ever. Franchisors that turn a blind eye to this scourge of margin compression, either through complacency, a lack of priority on franchisee profitability, or the poor management of systems, are placing their networks at risk through franchisee dissatisfaction, brand damage and stunted growth. On the other hand, franchise networks that have instigated a culture of positive franchising habits, such as collecting, monitoring and taking action on trends in key franchisee metrics, will be the winners.
On May 18th top franchisor operations executives will meet in Sydney, Australia for the annual Franchise Operations Conference to share how they are harnessing the power of metrics to maintain franchisee profitability, grow sales and ensure the viability of their networks. How many millions of dollars is your franchise network missing out on by tolerating bad business habits from your franchisees or your own franchisor management team?