BENCHMARKING MADE EASY HOW BENCHMARKING CAN BOOST FRANCHISE SYSTEM PERFORMANCE

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2 BENCHMARKING MADE EASY HOW BENCHMARKING CAN BOOST FRANCHISE SYSTEM PERFORMANCE

3 SPEAKERS Brian Spindel, CFE, President & COO, PostNet International Franchise Corp. Michael M. Isakson, President & COO, ServiceMaster Company Catherine Monson, CEO, FASTSIGNS International Mike Bidwell, CFE, President, The Dwyer Group

4 SESSION OVERVIEW Best Practices for ways to utilize benchmarking to boost system performance Examples of how franchise systems use benchmarking in different ways Highlights of OnTrack IFA s new web based benchmarking service

5 ABOUT POSTNET Been franchising for 19 years 750 locations in 8 countries Used benchmarking extensively over the past 4 years for: Top Line Sales/AUV, Ranking, Transaction Counts, Average Transaction, Group Comparison, etc. Financial/Profitability, Expenses as a % of Sales, Gross Profit Margin, etc. Have developed drobust tdashboard dregularly l monitored by franchisees.

6 CUSTOMER RELATIONSHIP ANALYSIS Challenge Go from a pure transactional model to a relationship model. Needed better/more customer data collection and accuracy at the POS. Needed active customer feedback with system wide benchmarking. Needed customer segmentation model to benchmark against system leaders.

7 OUR PLAN Learn what we don t know. Improve data collection at the POS and HQ levels. Put a system in place to inform and motivate Franchisees using benchmarking. Use information to grow our and franchisees business.

8 STARTING POINT WHAT WE LEARNED Very little customer data being collected by franchisees. No importance placed on accuracy data hygiene a problem. Customer data generally not linked/attached to transaction history. No real understanding of customer behavior or segmentation. tti

9 IMPROVING DATA COLLECTION AND ANALYSIS Worked with POS vendor and developed internal system of customer data. Needed to measure and compare New Customers to file ( capture ) and their behavior ( attachment to transactions). Used CRM expert to develop buckets to segment customers based on RFMX scores.

10 CAPTURE AND ATTACHMENT

11 SEGMENTATION BENCHMARKING

12 BACK END ACTIONABLE DATA FOR FRANCHISEES

13 BENCHMARKING CUSTOMER SATISFACTION

14 CRM BENCHMARKING BENEFITS Reverse engineer elite customer demographics to identify and approve store locations. Better utilize the NAF and more effective local advertising by targeting customer groups with elite characteristics. Franchisees more engaged in understanding customer base and understanding di what htthey need to do to grow their businesses.

15 ABOUT SERVICEMASTER Been franchising for 58 years 5,500 locations in 12 countries Use benchmarking extensively for: Region Performance Quartiling Franchise Sales Lead to award sales Mid to Executive Compensation Franchise Network Groups

16 BENCHMARKING FRANCHISE NETWORK GROUPS Began October 2009 Top 50 Disaster Restoration Businesses Meet in groups of ten at member location twice yearly Group webinars and video conferences p between meetings

17 PROGRAM GOALS Develop and achieve franchisee SMART goals (Specific, Measurable, Attainable, Realistic, Timely) Accelerated support for large franchise network participants Develop Disaster Restoration best business practices for implementation across the network Networking for most successful franchisees

18 KEY MEETING COMPONENTS Financial Key Performance Indicators SMART GoalReview In Depth Host Business Presentation Employee Survey Group Deep Dive (Examples: Managing a marketing/sales team, Disaster Restoration Profitability Study, Technician Training System)

19 FINANCIAL KPIS Debt COGS Revenu Expens Period Revenue Current to % GPM % Prod Fixed Net DSO Prodivity / e e Labor Profit Growth Growth Measured Ratio Equity % OH % % Employee % % 2010 YTD Marketing As % of Revenue Total Employe es Smith $10,756, % 38.5% 22.4% 30.3% 9.1% 37.9 $ % 3.2% 11.85% 130 Jones $8,270, % 46.0% 14.0% 34.0% 12.0% 47 $123, % 2.00% 4.0% 67 Purple $6,749, % 36.06% 63.94% 19.25% 53.19% 10.75% 52 $119, % 14.89% 6.33% 75 White $3,832, % 57.0% 16.0% 39.7% 17.30% $ 112, % % 6.2% 34 Pink $7,396, % 38.68% 21.51% 29.36% 9.32% 49 $99, % 26.45% 2.53% 99 Blue $2,135, % 39.00% 23.40% 22.70% 16.30% 76 $158, % 8.83% 0.76% 18 Red $2,670, % 31.42% 21.87% 30.21% 1.21% 42 $91, % 40.19% 4.31% 39 Orange $2,590, % 45.90% 19.80% 34.00% 11.90% 35 $82, % 0.71% 2.22% 42 Black $2,968, % 55.40% 44.60% 17.70% 29.30% 15.30% 39 $87, % 5.00% 4.64% 34 Brown $4,419, % 49.9% 17.9% 44.8% 5.1% 70 $83, % 9.34% 2.8% 53 Gray $1,953, % 52.0% 19.8% 36.2% 15.8% 22 $93, % 8.86% 86% 13% 1.3% 21 Magenta $671, % 48.6% 21.0% 64.0% 15.4% 91 $74, % 12.41% 3.2% 9 Yellow 4947, % 43.1% 20.4% 48.1% 4.6% $ 105, % 5.60% 3.9% 57

20 SMART GOALS ServiceMaster by Smith: Improve RAM capabilities to be able to manage multiple (3 vs. current capability of 1) out of state minicats & commercial projects w/o loss of local business. 1. Train all of our Restoration Project Managers to handle RAM commercial losses (Completed by 4/1/10. Gerry owns.) 2. Strengthen our temp and subcontractor labor base for traveling purposes (by 4/1/10 partially completed; will be fully completed by 7/1/10. Joe owns.) 3. Strengthen our own labor force for traveling purposes (On track to be completed by 7/1/10. Gerry owns.) 4. Identify and train two onsite project auditors (On track to be completed by 7/1/10. Joe owns)

21 EMPLOYEE SURVEYS ServiceMaster By Smith I know how the company measures its performance. Answer Options Response Percent Response Count Strongly Agree Mostly Agree Agree Mostly Disagree Strongly Disagree 37.5% % % % 2 0.0% 0 answered question 16 skipped question 0 I know how the company measures its performance. Strongly Agree Mostly Agree Agree Mostly Disagree Strongly Disagree

22 DEEP DIVE MARKETING KPIS ServiceMaster by Jones Actual Q1 Goal Q1 Distance to Q1 Goal LEADS JOBS Sales in $ $ $ % Agent Visits Face to Face Meetings New Contacts Made Recover Accounts signed 5 5

23 ABOUT FASTSIGNS Been franchising for 26 years 530 locations in 7 countries Used benchmarking with franchise partners extensively for: Improve their profitability Improve their finance stability Improve the selling process Improve customer satisfaction

24 ANNUAL FINANCIAL BENCHMARKING SURVEY Over 50% participation in 2009 Calculate average and profit leaders Use Benchmarking results for training, coaching and motivation Awards at Convention based on profitability

25 INCOME STATEMENT BENCHMARKING Average Sales $688,543 $548,063 Cost of Goods 26.8% 26.5% Labor Expense (includes Owner) 35.4% 36.2% Advertising Expenses 4.5% 4.4% Auto Expenses 1.5% 1.5% Facility Expenses 75% 7.5% 91% 9.1% Equipment Expenses 1.4% 1.4% G & A Expenses 13.3% 14.7% Owner s Discretionary Profit $113,132 $70,625 ODP % 16.4% 12.9%

26 INCOME STATEMENT BENCHMARKING 2008 Average 2008 Profit Leader 2009 Average 2009 Profit Leader Average Sales $688,543 $795, $548,063 $708, Cost of Goods 26.8% 25.0% 26.5% 24.7% Labor Expense (includes Owner) 35.4% 33.7% 36.2% 34.1% Advertising 4.5% 4.2% 4.4% 4.0% Expenses Auto Expenses 1.5% 1.3% 1.5% 1.2% Facility Expenses 7.5% 6.4% 9.1% 7.6% Equipment Expenses 1.4% 0.9% 1.4% 1.1% G & A Expenses 13.3% 11.9% 14.7% 12.6% Owner s Discretionary Profit $113,132 $211,782 $70,625 $173,175 ODP % 16.4% 26.6% 12.9% 24.4%

27 BALANCE SHEET BENCHMARKING Current Ratio Target: 2:1 Profit Leaders: 1.79:1 Average: 1.26:1

28 POINT OF SALE BENCHMARKING Average Invoice Target: $300 Profit Leaders: $ Average: $259.77

29 POINT OF SALE BENCHMARKING New vs. Repeat Customers Center 7 years or older: 20% new Average: 31% new Profit fitleaders: 22% new

30 POINT OF SALE BENCHMARKING Average AR Collection Days Target: 28 Profit Leaders: 34 Average: 46

31 POINT OF SALE BENCHMARKING Customer Satisfaction Survey (1 to 5 scale) Target: 4.75 Average: 4.51 Profit Leaders:

32 ABOUT THE DWYER GROUP Been franchising for 30 years 1290 locations 7 Franchise Brands Used benchmarking extensively for: Key statistic comparison across our companies Budgeting & planning To establish target KPI s for franchisees

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34 Key Statistics 2009 by Concept Company A Company B Company C Company D Company E Company F Total Revenues: Royalties $ 10,000,000 $ 6,000,000 $ 3,000,000 $ 5,000,000 $ 2,500,000 $ 2,000,000 $ 28,500,000 Franchise Fees - Domestic 2,000,000 2,500,000 2,000,000 3,500,000 2,500,000 2,000,000 14,500,000 Franchise Fees - International ti 100, , Franchise Fees - Transfers & Other 200,000 75,000 30,000 60,000 25,000 50, ,000 Other 300, , , , , ,000 1,850,000 Total $ 12,600,000 $ 8,975,000 $ 5,230,000 $ 8,960,000 $ 5,325,000 $ 4,300,000 $ 45,390,000 EBITDA $ 5,000,000 $ 2,500,000 $ 500,000 $ 3,000,000 $ 1,000,000 $ 250,000 $ 12,250,000 EBITDA / Revenues 39.7% 27.9% 9.6% 33.5% 18.8% 5.8% 27.0% # of Franchisees (U. S. & Canada): Beginning of Year ,155 Additions Transfers (5) (4) (5) (2) (6) (9) (31) Terminations (16) (19) (23) (24) (28) (15) (125) End of Period ,251 # of Support Personnel (1) Franchisees per Support Person Royalties per Support Person $ 909,091 $ 600,000 $ 428,571 $ 500,000 $ 357,143 $ 333,333 $ 558,824 End of Period: # of Direct Support Employees (3) Franchisees per Franchise Consultant Avg. Monthly Domestic Franchise Sales $ 124,767 $ 125,788 $ 142,988 $ 307,295 $ 145,213 $ 161,370 $ 1,007,419 # of Salespeople (2) Avg. Monthly Sales per Salesperson $ 41,589 $ 41,929 $ 28,598 $ 61,459 $ 29,043 $ 40,342 $ 40,297 Selling Expenses $ 1,160,293 $ 1,162,011 $ 1,175,971 $ 1,996,367 $ 1,409,274 $ 1,530,011 $ 8,433,927 Selling Expenses / Franchise Sales 58.0% 46.5% 58.8% 57.0% 56.4% 76.5% 58.2% U. S. and Canada Systemwide Sales $ 250,000,000 $ 125,000,000 $ 60,000,000 $ 58,000,000 $ 61,600,000 $ 33,000,000 $ 587,600,000 U. S. and Canada Sales per Franchisee $ 875,000 $ 675,000 $ 325,000 $ 280,193 $ 336,612 $ 201,835 $ 488,446 Support Overhead $ 1,350,000 $ 1,200,000 $ 950,000 $ 1,297,625 $ 942,346 $ 677,090 $ 6,417,061 Support Overhead / Systemwide Sales 0.5% 1.0% 1.6% 2.2% 1.5% 2.1% 1.1% Support Overhead / Royalties 13.5% 20.0% 31.7% 26.0% 37.7% 33.9% 22.5% Bad Debts $ 750,000 $ 1,000,000 $ 400,000 $ 457,169 $ 406,131 $ 405,315 $ 3,418,615 Bad Debts / Revenues 6.0% 11.1% 7.6% 5.1% 7.6% 9.4% 7.5% Job Average $ 420 $ 250 $ 650 $ 1,040 $ 641 $ 152 N/A Population of U. S. Territories Sold 188,000, ,000,000 81,000,000 65,000,000 41,400,000 58,600, ,000,000 % of U. S. (Assume 280 Million Salable) 67.1% 63.2% 28.9% 23.2% 14.8% 20.9% N/A U. S. Sales per Capita $ 1.19 $ 0.69 $ 0.71 $ 0.89 $ 1.49 $ 0.56 $ 0.92 Per Capita High Water Mark $ 8.72 $ 7.24 $ 8.85 $ $ 8.27 $ 2.29 $ 8.67 International Systemwide Sales $ 30,000,000 $ - $ 10,000,000 $ 165,000,000 $ 167,000 $ - $ 205,167,000 # of International Franchisees

35 Company A Company B Company C Revenues: Royalties $ 10,000,000 $ 6,000,000 $ 3,000,000 Franchise Fees - Domestic 2,000,000 2,500,000 2,000,000 Franchise Fees - International 100, Franchise Fees - Transfers & Other 200,000 75,000 30,000 Other 300, , , Total $ 12,600,000 $ 8,975,000 $ 5,230,000 EBITDA $ 5,000,000 $ 2,500, $ 500, EBITDA / Revenues 39.7% 27.9% 9.6%

36 U. S. and Canada Systemwide Sales $ 250,000,000 $ 125,000,000 $ 60,000,000 U. S. and Canada Sales per Franchisee $ 875,000 $ 675,000 $ 325,000 Support Overhead $ 1,350,000 $ 1,200,000 $ 950,000 Support Overhead / Systemwide Sales 0.5% 1.0% 1.6% Support Overhead / Royalties 13.5% 20.0% 31.7%

37 # of Support Personnel (1) Franchisees per Support Person Royalties per Support Person $ 909,091 $ 600,000 $ 428,571 End of Period: # of Direct Support Employees (3) Franchisees per Franchise Consultant

38 # of Salespeople (2) Avg. Monthly Sales per Salesperson $ 41,589 $ 41,929 $ 28,598 Selling Expenses $ 1,160,293 $ 1,162,011 $ 1,175,971 Selling Expenses / Franchise Sales 58.0% 46.5% 58.8% Population of U. S. Territories Sold 188,000, ,000,000 81,000,000 % of U. S. (Assume 280 Million Salable) 67.1% 63.2% 28.9%

39 Termination Analysis Recap Concept AVG YRS Total Zees Total % of Total Sales A FRAN 12 Months # of NC # OF MR # OF NR Term Zees Churn Company A % 06% 0.6% Company B % 1.6% Company C % 1.2% Company D % 0.6% Company E % 0.9% Total % 0.8%

40 Company A Company B COMPANY AVERAGE 2010 T Budget 2010 T Budget 2010 T Budget Travel per Zee Travel per Zee , Meals per Zee Franchise Relations per

41 TRIP REPORT 2011 BUDGET Company A Company B Company C Average Trip Count Travel 145, , , Meals and Entertainment 28,000 45,000 65,000 Cost per Trip 1,200 1,500 1,700 1,344 Travel per Trip 1,036 1,200 1,375 1,096 Meals/Entertainment per Trip

42 On Track is a free online benchmarking tool for IFA members Compare the performance of your franchise system to your peers. ViewKPIsby system size, business category, total revenue, investment cost, and years in franchising. Get analysis on unit metrics, lead costs, expenses, and employee allocations. Access 24/7 with an easy to use interface for information when you need it.

43 SEGUE ONTRACK HIGHLIGHTS Benchmarking Task Force shared data and identified key metrics to provide most useful KPIs for franchisors. Focused on ways to decrease time required for gathering data andusing reports andcharts. Developed criteria and selected software vendor, Dynamic Benchmarking, to create web based platform. Pilot group of IFA members tested and refined OnTrack prior to release at IFA Convention.

44 Using On Track is easy Log into On Track via the IFA website using a unique user name and password to protect privacy Enter your key performance data. Data entry time should not exceed minutes. Compare your performance to your peers by Primary Line of Business / Number of Franchised Units / Franchise Investment Cost / Years in Franchising / Total Revenue Download reports on revenue, operations expenses, financial KPI s and more

45 ADD SCREENSHOT HERE ONTRACK GATEWAY PAGE My Company Enter your data Compare Companies Compare your company to others in the database Reports and Charts Download PowerPoint charts with ratio analysis On Track s questions are grouped into On Track s questions are grouped into major categories. Click on the gray sub groups to begin data entry.

46 Line charts display your results compared to your peers using 25th Percentile, Median, 75th Percentile, and your company s results (in blue)

47 Use filters to compare your company to groups of other companies. Select one filter, two filters or all of the filters to create a peer group that provides meaningful performance comparison. Create scenarios for comparisons to groups of companies that are similar to yours, bigger, smaller, different industry it is your choice!

48 PowerPoint charts designed by the IFA are ready to download and use for communication, presentations, and capturing historic snapshots. These charts provide valuable peer comparison information with data analysis, ratios and key performance indicators.

49 Over 25 individual charts display performance comparisons for Revenue Operations expenses Financial KPIs Employees Sales

50 SEGUE ONTRACK HIGHLIGHTS Summary Decision makingtoolfor improvingperformanceperformance through peer comparisons. Professional reports for viewing and downloading. Valuable financial and employee related KPIs by company s size, business category, franchise investment cost, level of revenue andyears infranchising. Simple and intuitive user interface with 24/7 information availability.

51 WHAT IFA MEMBERS SAY... Many thanks to IFA for developing a great new service for IFA members. OnTrack is an easy to use system. In less than an hour it provided me with quality information for benchmarking. Shelly Sun, CFE, CEO & Co Founder, Brightstar Franchising OnTrack is very user friendly, focusing on metrics that are important to franchisors such as franchise sales, operations, training and support. OnTrack gives franchisors a way to compare performance to other great IFA members. Mike Carlet, CFO and Senior VP, Di Driven Brands OnTrack is an excellent benchmarking tool that IFA members can use to identify areasfor improvement. It s very easy to organize data and select reports and charts with the click of a mouse. Joe Bourdow, CFE, Senior Advisor, Valpak

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