What is franchising’s success secret?
Franchising relies on the duplication of a successful business system. Human nature being what it is franchisees, being owner-operators, will always outperform salaried managers because they have invested their life savings into the venture and are up to their necks in debt. Putting yourself into a franchisee’s shoes for a moment will illustrate this. Having risked all, he/she is only too keen to:
- Give customers what they really want. Should this mean going the extra mile by, for example, offering longer trading hours, then so be it.
- Love customers and do whatever else it takes to turn them into regulars and persuade them to recommend the business to their friends.
- Enthusiastically market the business. Subject to proper selection, franchisees will be well established within the communities they serve. They will find it relatively easy to generate sales through networking.
- Take genuine pride in supplying products of outstanding quality.
- Optimise prices. Instead of wanting to be seen as the cheapest in town, the typical franchisee will prefer to be the best.
- Plan purchases in advance to minimise the danger of stock outages and overstocking.
- Monitor deliveries, for example by counting and/or weighing goods received, and optimise stock levels and stock control.
- Diligently use the network’s approved cost control system.
- Monitor business performance on a daily basis and calculate profitability at least monthly.
- Provide feedback and suggestions that help the franchisor to build the brand.
To sum up: A franchisee is an entrepreneur and would never want to work for a boss. This makes him/her a very special person, and it shows in the level of performance.
What’s in it for you as the franchisor?
As a prospective franchisor, you will be wondering how franchising may impact on your bottom line. If so, we have excellent news for you: Your R.O.I. will be outstanding, simply because:
- Your initial investment into expansion is limited to the cost of creating the franchise package and the support infrastructure.
- The establishment of branches is funded by franchisees.
- Operating costs and operational risk are carried by franchisees.
- Upfront fees contribute towards the cost of initial franchisee support and leave some profit in the franchisor’s hands.
- Monthly management services fees calculated on franchisees’ sales provide an immediate and steadily growing income stream.
- Franchisees contribute to the network’s advertising fund. The pooling of these contributions helps to build the brand in double-quick time.
- Product purchases by franchisees contribute towards achieving economy of scale throughout the network.
- Economies of scale speed up development and make it possible to establish a national footprint without the burden of owning and operating individual outlets.
- Subject to careful franchisee selection, the network will have a dedicated team of brand supporters determined to optimise the network’s potential.
- Should you wish to sell the business at some point in the future signed franchise agreements constitute a saleable asset.
To sum up, subject to proper implementation, franchising will deliver a highly pleasing R.O.I. And just think what you could do with the capital you unlock if you convert an existing tired branch network into a franchise. Should you wish to retain ownership of some outlets, a plural distribution model whereby some outlets are franchised and others company-owned, is a viable option.
Top Tip:
A useful tip that Eric Parker from Franchising Plus gives, is not to close an under-performing branch without careful examination of its true potential. There are many instances on record where an underperforming branch (which had been managed by an employee) experienced an almost instant turn-around after an owner-operator took control. Wouldn’t you agree that franchising can play an important role in optimising your distribution strategy? If the answer is yes, I would be pleased to discuss options with you.
