Why we ask what your franchise break-even is

Rachael Dao on March 18, 2018

Nearly everyone who runs a franchise location can tell you what their franchise break-even revenue is. It’s a critical number that holds importance for business and psychological reasons.

Make any lessthan break-even and ownership will have a degree of anxiety. Even new franchises with healthy growth trajectories.

Generate enough revenue to surpass your break-even and you can at least breathe easier.

Grow your revenue by even a few percentage points past break-even, and your gross profit, and general optimism, <a href="https://www.entrepreneur.com/article/276296" target="_blank" rel="noopener">multiplies</a> rapidly.

A franchise locations’ current performance relative to break-even has a profound impact on the subsequent approach to any digital marketing campaign. Which is why we ask all prospective clients how they are tracking.

The answer to this important question has several key implications:

It helps us understand your needs and expectations.

If current business performance is below the franchise break-even point, the upcoming campaign will be relied upon to bridge the gap between a degree of financial stress and a good night's sleep.  That’s important to know.

With industry experience we can give a range of likely outcomes given a set budget; from best case to worst case.

Too often agencies will take your money, offer up some fast talk about what media they’ll be spending your money on, and completely avoid key metrics around cost-per-sale or cost-per-new customer acquisition.

Obviously a non-performing campaign at this point is only going to send a struggling franchise further backwards. That’s not an option.

While it’s true you will never know exact performance of a campaign before you start, previous experience should be able to inform a likely range of outcomes. Especially if you’re dealing with a <a href="https://ltnetwork.com.au/making-of-specialist-franchise-marketing-company/" target="_blank" rel="noopener">franchise expert</a>.

Very quickly we’ll be able to say what’s realistic to expect from a campaign.

It helps gauge appetite for risk

On a campaign that can’t fail, you need a safe bet.

The digital marketing landscape is never stagnant with key players such as Google and Facebook constantly evolving their advertising options.

For example in just the last few months the following options have become available:

  • Purchase from Instagram Stories links
  • New call-to-action buttons available for Instagram advertising
  • New video dimension options for Facebook and Instagram

On the face of it, they all look to have their merits. They may be highly effective, but they may also be less effective than more traditional options such as Google Adwords with countdown timers, boosted Facebook posts and Gmail banner ads.

The only way to find out for sure is to test them. Now if you’re tracking at below break-even performance that’s not an exciting prospect. On a campaign that can’t fail, you need a safe bet.

However, a location tracking well above franchise break-even may want to allocate a proportion of their budget to these new options. They could pay off big-time. But if they don’t, it’s not the end of the world and no one’s losing sleep.

It helps to phase a campaign

Having a high level gauge of overall business performance… helps with this phasing.

Often digital campaigns run in phases. An upfront awareness phase, followed by a consideration phase before a final conversion phase.

To paint a picture of how this might look when executed, the awareness phase often includes media such as banner display ads, Instagram stories and YouTube ads. Great for getting eyeballs and generating interest, but less effective for driving the actions that lead to sales.

A follow up conversion phase is then put in play to capitalize on this interest with more action-oriented media. Think Google Adwords, retargeted Facebook ads and email campaigns.

Having a high level gauge of overall business performance, such as performance relative to break-even, helps with this phasing.  While past experience provides a framework on how to phase a campaign for optimum results, this may be overridden by a franchises need to generate returns as quickly as possible.

It’s only common sense that a two-month awareness phase is entirely inappropriate for a franchise location that’s struggling right now. And yet, many digital agencies and marketing companies won't take this into account.

Conversely, a business tracking well above its franchise break-even can phase a campaign for optimum results over a longer period of time. Even if it means most sales will land in the back half of the campaign.

The business context is essential

Many clients are somewhat surprised to be asked about their business general financial performance, including performance relative to break-even.

It’s actually surprising many digital agencies don’t ask about it.

It’s essential background information that has instant implications for the type of campaign that’s required, the results expected and the timeframe in which to achieve them.

Like what you see?