Evaluating a Franchise Model

Dorian Cunion

Date

Mar 21, 2016

How Franchisors support Franchisees is an important question prospective Franchisees should ask prior to signing a Franchising contract. Levels of support vary dramatically from one Franchise to another, and before individuals commit to a brand, they need to understand how they can help franchisees reach their goals. When Franchisees are surveyed, two things jump out as being key factors in their satisfaction; return on investment and support from the Franchisor. Too often prospective Franchisees focus too much on return on investment, and not enough on support. Return on investment is a key metric; and is important to the long-term sustainability of any venture, but without Franchisor support those returns will decrease over time. Franchisors support their Franchisees in various ways; however the focus of this article is on training, advertising, innovation and expense support. These 4 variables will have a huge impact on the long-term success of Franchisees.

Training

Training is one of the most important contributing factors to a Franchisee’s success. Regardless of their background, Franchisees join a Franchise to leverage their expertise within an industry. A good Franchisor has organizational knowledge that provides Franchisees with competitive advantage over other businesses. This knowledge is gained through the trials and errors of Franchisees in the organization. Great Franchisors take the individual learnings of different Franchisees, consolidate them, and convert them into best practices from which all Franchisees can learn. When evaluating Franchisors, it is ideal to understand how they learn and improve, how they communicate those learning across the system, and how they ensure that everyone is given the opportunity to leverage the shared learning of the organization. Franchisees should expect initial and ongoing training to help them build their business. Lack of a well-documented training program or poor reviews from current Franchisees are a red flag that a company does not have a well-developed training program. There are few things worse than being in a situation where help is needed and there is no one around to provide support.

Advertising

Advertising is something near and dear to many Franchisees hearts. Advertising is what keeps the phones ringing, and the doors swinging. As individuals evaluate Franchisors, they should conduct research on how they support their current Franchisees in acquiring and retaining customers. Advertising best practices are changing constantly, and it is important to understand the effectiveness of the advertising campaigns the prospective Franchisor is executing. The days of winning with TV advertisements are past. Customers are mobile, they are living more digitally, they consume content on demand, and many traditional advertising methods are becoming ineffective. To be successful in the future, brands will have to adapt to the changing behaviors of customers. Advertising will need to become more personalized, while reaching and speaking to customers differently. Brands that understand social media and how to reach customers on mobile devices will be positioned well to attract and retain new customers.

Innovation

We live in a world where competition is fierce. More and more businesses are expanding their product offering in an attempt to capture business beyond their traditional model. Brands that are not evolving are dying.  To stay relevant in today’s economy; brands must innovate new and better ways of taking care of customers’ needs. To evaluate a company’s ability to innovate in the future, look at their historical ability to innovate, their current plans for evolving the business, and their history of being a trend setter, versus a trend follower.  Innovation is something that is in some brand’s DNA.  When selecting a brand, choose one that has a plan for staying relevant not just for today, but for decades to come.

Support

The final component of a Franchisor’s support offering that is worth in depth review is how they support Franchisees with regard to expense controls. Businesses have various types of expenses, from payroll, facilities, maintenance, utilities, cost of goods sold and supplies. A review of a Franchise Disclosure Document (FDD) will provide insight on which of these expenses will be the Franchisee’s and which ones will be the Franchisors. The key call out is to understand what expenses the Franchisee will be responsible for, and how the company can and will support Franchisees in keeping those cost low. Great Franchisors use their scale to reduce expenses for their Franchisees, but do not assume that all Franchisors put resources towards reducing Franchisees expenses.

Choosing a franchise is a big decision, and there are a lot of factors to consider. By focusing too much on initial return on investment, many Franchisees find themselves with brands that do not provide adequate long-term support. It is imperative to complete a holistic review of how a franchisor supports Franchisees.  Brands that support Franchisees with training, advertising, innovation and focus on reducing cost improve their Franchisees chances of long-term success. Being a Franchisee is hard. Having the support of a strong franchisor makes it easier. Seek out Franchisors that are truly invested in the success of their Franchisees. Explore how franchisors demonstrate support of Franchisees today, to better project the support they will provide in the future.

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