What are the best expense management metrics for improving financial performance in a franchise business?

1 Expense Ratio

The expense ratio is the percentage of your revenue that goes to cover your operating expenses. It shows how efficiently you use your resources to generate income. A lower expense ratio means you have more profit margin and more room to invest in growth. To calculate your expense ratio, divide your total operating expenses by your total revenue and multiply by 100. You can also compare your expense ratio to the industry average or to other franchisees to benchmark your performance.

2 Expense Variance

The expense variance is the difference between your actual expenses and your budgeted expenses. It shows how well you plan and manage your spending. A positive expense variance means you spent less than you expected, while a negative expense variance means you overspent. To calculate your expense variance, subtract your actual expenses from your budgeted expenses and divide by your budgeted expenses. You can also analyze your expense variance by category, such as labor, rent, utilities, marketing, etc., to identify where you can save or improve.

3 Expense Growth Rate

The expense growth rate is the percentage change in your expenses over a period of time. It shows how fast your expenses are increasing or decreasing. A high expense growth rate may indicate that you are expanding, investing, or facing inflation. A low expense growth rate may indicate that you are cutting costs, optimizing, or facing deflation. To calculate your expense growth rate, subtract your expenses in the previous period from your expenses in the current period and divide by your expenses in the previous period and multiply by 100. You can also compare your expense growth rate to your revenue growth rate to see if you are growing faster than your costs.

4 Expense Per Unit

The expense per unit is the average amount of expenses you incur for each unit of output or service. It shows how much it costs you to produce or deliver your product or service. A lower expense per unit means you have more competitive advantage and more profitability. To calculate your expense per unit, divide your total expenses by the number of units you sold or served. You can also compare your expense per unit to the price per unit to see if you are charging enough to cover your costs and make a profit.

5 Expense Per Customer

The expense per customer is the average amount of expenses you incur for each customer you acquire or retain. It shows how much it costs you to attract and satisfy your customers. A lower expense per customer means you have more customer loyalty and more lifetime value. To calculate your expense per customer, divide your total expenses by the number of customers you have or gained. You can also compare your expense per customer to the revenue per customer to see if you are earning more than you are spending on each customer.

6 Expense Management Score

The expense management score is a composite metric that combines several expense management metrics and KPIs into one number. It shows how well you are managing your expenses overall. A higher expense management score means you have more financial performance and more operational excellence. To calculate your expense management score, you can use a weighted average formula that assigns different weights to different metrics and KPIs based on their importance and relevance to your business. You can also set a target score and track your progress over time.