As a franchise owner, you are part of a $600B industry. This industry is larger than the automotive, computer and airline industries combined. While it is relatively easy to find information about the thousands of franchise companies (franchisors), very little accurate and objective information exists about the owners (franchisees) comprising this massive industry. FranchiseFacts is striving to fill this information gap by surveying franchisees about their experiences, and sharing our findings with the franchise community. Our goal is to present solid quantifiable information based on franchisee participation in our annual survey. We can only do this with your support.
The participation we require is not just from the few who regularly participate in franchise discussion boards. We need to hear from the silent majority of franchisees who do not participate in a vocal or identifiable manner. It is not uncommon for the vocal minority on the various social media sites to have opinions that may not be reflective of the majority, so we strive to obtain wider participation in the survey.
It often seems that far too many people are fed up with voluntary requests for information. Telemarketers and junk e-mail have taken a toll on our willingness to share information. Then there is the mistrust that many franchisees have with those that gather and report information. Far too many franchisors are perceived as not being interested in gathering reliable information, or selective reporting of survey findings to its own franchisees. Nevertheless, it is important that we recognize the importance of independent and unbiased information gathering. Without reliable information, most of which can only be gathered through surveying, both franchisor and franchisee bear the costs. The alternative to good information for making sound business decisions is increased financial expenditures, poor business decisions and internal conflict between franchisee and franchisor.
To cite just one example of what we can learn from this first survey period, the accompanying chart reports, based on survey responses, what franchisees hope to be doing five years from now. It is from this, and similar insights, that we have begun to think of the franchise industry as being in the early stages of an industry-wide contraction. This is just one of the topics that we will elaborate on in the upcoming Annual Report. Other articles (available at www.FranchiseFactsUSA.com) suggest how franchisors can try to reverse this trend.
Click to view accompanying chart.
The survey period for FranchiseFacts’ National Franchisee Survey closes on October 31. All survey responses received after this date will be incorporated into the 2011 survey period. The 2010 Annual Report will be available early in 2011. This report will, to the best of our ability, report the information you share with us in an unbiased and impartial manner.
These last few weeks are your final opportunity to contribute to the franchise community by participating in this comprehensive survey that maintains your confidentiality and is independent of franchisors and franchise associations. As a participant, you have the option of receiving the Annual Report and comparing our industry findings with that of your own business.
To be clear, FranchiseFacts does not sell franchises nor do we have an interest in making franchisors look bad. As such, we do not have a vested interest in the specific results or findings of our survey. That is a crucial difference between FranchiseFacts research and research funded by organizations that derive revenue from sources other than the research. We look at where the data leads and then try to explain the reasons for our findings.
As with the articles and preliminary findings I have reported to you throughout the year, it is likely that you will not agree with everything that we report. We do our best to understand and explain what may appear to be inconsistencies between the data we report and conventional thinking. It is our hope that the soon to be released Annual Report will encourage discussion and promote better understanding between franchisees and franchisors. To facilitate this, we will be providing an advance copy of this report to Blue MauMau and other major media so that they can conduct their own independent review of our findings.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Monday, September 13, 2010
Monday, August 16, 2010
Critical Support Areas for New Franchisees
We are experiencing a dramatic increase in individuals reaching retirement age. As with other parts of the economy, it is our expectation that some segments of franchising will undergo dramatic changes as more people contemplate retirement. While some of these individuals may choose franchising as a second career, it is more likely that the franchise industry will need to embark on a major recruitment drive to attract younger blood to the industry.
My July article noted that 15% of respondents anticipate no longer owning their franchise in five years time simply due to anticipated retirement. Another 71% of respondents anticipated doing something different in five years time. Regardless of the reason, an infusion of new franchisees will be a necessity simply to maintain the current infrastructure and revenues. Anything less will result in a contraction for affected companies within the industry. To prevent such a contraction within a specific franchise, there needs to be a focus on services most important to attracting and supporting newer franchisees.
Support requirements for new franchisees can be quite different than what is required by their more seasoned counterparts. More specifically, newer franchisees tend to require more (initial) training as they learn their new business. New franchisees rely on franchise newsletters to learn about industry best practices. They are learning new, and often proprietary, computer software. And they are cost conscious after investing significant sums of money to open a new business.
FranchiseFact’s National Franchisee Survey incorporates aspects of franchisee support that we feel are most important to newer franchisees. Specifically, the survey asks respondents to state their agreement or disagreement with statements about the support they receive from their franchisor. Franchisee responses to these statements help us to understand how franchisor support is perceived by franchisees. The accompanying table highlights preliminary (mid survey) findings that we feel are most important to the new franchisee.
Click to view accompanying table.
What we found is that just 55% of respondents report receiving access to training manuals or tutorials. This does not mean that 45% of respondents do not receive training. It does mean that training may be less formal, possibly limited to verbal instruction, and most likely lacking in resources for future reference.
Generally, we found that franchisees are dissatisfied with the type of support that we feel is most important to the new franchisee. Only 14% of respondents report that their franchise newsletter is a useful informational resource while 56% strongly disagree with the same statement. Overall, 21% of respondents feel that they received any form of training that helped them to be successful. Technology services are considered adequate by 27% of respondents and vendor programs are considered useful by 17% of respondents.
Franchisee support can vary widely among franchisors as can the fees paid by franchisees for this support. Franchisees paying higher fees are more likely to expect a greater level of support. Those who pay lower fees are more likely entitled to and receive lower levels of support. Regardless, lower levels of satisfaction with the support that is being provided is an indicator that some change is warranted.
As franchisors determine their need to recruit new franchisees to replace those leaving their system, it is the above mentioned areas that we feel will need to be addressed to best support these new business owners.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
My July article noted that 15% of respondents anticipate no longer owning their franchise in five years time simply due to anticipated retirement. Another 71% of respondents anticipated doing something different in five years time. Regardless of the reason, an infusion of new franchisees will be a necessity simply to maintain the current infrastructure and revenues. Anything less will result in a contraction for affected companies within the industry. To prevent such a contraction within a specific franchise, there needs to be a focus on services most important to attracting and supporting newer franchisees.
Support requirements for new franchisees can be quite different than what is required by their more seasoned counterparts. More specifically, newer franchisees tend to require more (initial) training as they learn their new business. New franchisees rely on franchise newsletters to learn about industry best practices. They are learning new, and often proprietary, computer software. And they are cost conscious after investing significant sums of money to open a new business.
FranchiseFact’s National Franchisee Survey incorporates aspects of franchisee support that we feel are most important to newer franchisees. Specifically, the survey asks respondents to state their agreement or disagreement with statements about the support they receive from their franchisor. Franchisee responses to these statements help us to understand how franchisor support is perceived by franchisees. The accompanying table highlights preliminary (mid survey) findings that we feel are most important to the new franchisee.
Click to view accompanying table.
What we found is that just 55% of respondents report receiving access to training manuals or tutorials. This does not mean that 45% of respondents do not receive training. It does mean that training may be less formal, possibly limited to verbal instruction, and most likely lacking in resources for future reference.
Generally, we found that franchisees are dissatisfied with the type of support that we feel is most important to the new franchisee. Only 14% of respondents report that their franchise newsletter is a useful informational resource while 56% strongly disagree with the same statement. Overall, 21% of respondents feel that they received any form of training that helped them to be successful. Technology services are considered adequate by 27% of respondents and vendor programs are considered useful by 17% of respondents.
Franchisee support can vary widely among franchisors as can the fees paid by franchisees for this support. Franchisees paying higher fees are more likely to expect a greater level of support. Those who pay lower fees are more likely entitled to and receive lower levels of support. Regardless, lower levels of satisfaction with the support that is being provided is an indicator that some change is warranted.
As franchisors determine their need to recruit new franchisees to replace those leaving their system, it is the above mentioned areas that we feel will need to be addressed to best support these new business owners.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Monday, July 26, 2010
Top Selling Periods for Franchised Businesses
A business with consistent sales throughout the year is, more often than not, a more stable operation than one that relies on a couple of key months for the bulk of their profits. Consistent sales make it easier to plan, staff and budget. Costs are frequently lower and profit margins may be higher, partially due to reduced discounting. Nevertheless, certain times of the year remain important selling periods. These annual events represent periods when the consumer is more likely to purchase certain products or services. A prudent business operation needs to cater to these patterns. FranchiseFacts’ National Franchisee Survey has taken the first step at measuring the impact of key selling periods by asking survey respondents to identify those major holidays and events that have a positive impact on their business.
Major media reports sales revenues for large retail chains and, from this, we have come to understand the importance of the Thanksgiving to Christmas period to these larger retailers. For other businesses, however, this same period often represents a dramatic slowdown in sales.
Survey respondents are presented with a list of holidays and major events, and asked to select those items in the list which have a noticeable positive impact on their business. This list includes major sports and holidays, plus key spending periods such as weddings, moving and back to school.
Respondents report Christmas (18%) as being THE most important sales period, followed by Valentines Day (13%) and Mothers Day (13%). While these top sales periods may not come as a surprise to many, what we find surprising is that so few of the respondents identified these periods as having a positive impact on their business.
A second tier of important sales periods includes Easter (9%), Back to School (9%), Weddings (8%), Moving/Relocation (5%) and Halloween (5%).
The bottom tier of important sales periods includes major sports, Thanksgiving and Fathers Day which all received fewer than 5% of responses.
These percentages are likely to vary by industry, region of the country and also specific local events. A region hosting the NFL’s Super Bowl, for example, is likely to see a significant influx of visitors and spending in many sectors of the local economy. Likewise, homeowners in New England are more likely to decorate their homes and host parties for Halloween, making this holiday more important to sectors of their local economy. Businesses providing products to support Halloween events (parties, food, costumes, decorations, etc.) are likely to transact a much greater portion of their business during this period.
While Christmas does represent an important selling period for many in franchising, this group represents less than 20% of responses to this question. Perhaps the franchising industry, which is primarily comprised of small businesses, have a more balanced business model where revenues are more evenly spread out throughout the year. Alternatively, it may simply be that major holidays and events are less important to businesses than in prior years.
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Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Follow our Blog at franchisefactsusa.blogspot.com
Major media reports sales revenues for large retail chains and, from this, we have come to understand the importance of the Thanksgiving to Christmas period to these larger retailers. For other businesses, however, this same period often represents a dramatic slowdown in sales.
Survey respondents are presented with a list of holidays and major events, and asked to select those items in the list which have a noticeable positive impact on their business. This list includes major sports and holidays, plus key spending periods such as weddings, moving and back to school.
Respondents report Christmas (18%) as being THE most important sales period, followed by Valentines Day (13%) and Mothers Day (13%). While these top sales periods may not come as a surprise to many, what we find surprising is that so few of the respondents identified these periods as having a positive impact on their business.
A second tier of important sales periods includes Easter (9%), Back to School (9%), Weddings (8%), Moving/Relocation (5%) and Halloween (5%).
The bottom tier of important sales periods includes major sports, Thanksgiving and Fathers Day which all received fewer than 5% of responses.
These percentages are likely to vary by industry, region of the country and also specific local events. A region hosting the NFL’s Super Bowl, for example, is likely to see a significant influx of visitors and spending in many sectors of the local economy. Likewise, homeowners in New England are more likely to decorate their homes and host parties for Halloween, making this holiday more important to sectors of their local economy. Businesses providing products to support Halloween events (parties, food, costumes, decorations, etc.) are likely to transact a much greater portion of their business during this period.
While Christmas does represent an important selling period for many in franchising, this group represents less than 20% of responses to this question. Perhaps the franchising industry, which is primarily comprised of small businesses, have a more balanced business model where revenues are more evenly spread out throughout the year. Alternatively, it may simply be that major holidays and events are less important to businesses than in prior years.
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Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Follow our Blog at franchisefactsusa.blogspot.com
Monday, July 12, 2010
Franchisee Satisfaction Indicators Suggest Contraction in Franchising
We believe that it may be possible to predict, or change, future events by understanding franchisee satisfaction and its impact. This is contrary to the more typical utilization of franchisee satisfaction as a current or historical indicator. To aid in this, we have incorporated what we feel are leading indicators into our National Franchisee Survey and our satisfaction index. Through this index, we hope to be able to identify those franchises primed for growth.
Future success for most franchisors is dependent on the renewal of existing franchises and the sale of new franchises. Current franchisees play an important role in this process. In addition to royalties or other payments to the franchisor, franchisees also serve as referral agents that impact on new sales. The thoughts and intentions of current franchisees is crucial intelligence for a franchisor that can aid in building their franchise network. The accompanying table presents three leading indicators. All are part of the National Franchisee Survey and incorporated into the index that will be a part of our Annual Report at the end of this year.
What we see is troubling. By a wide margin, surveyed franchisees report that they would not provide a positive referral to a prospective franchisee. They also report that they would not have invested in their current franchise had they known what they now know. Since overall numbers can hide crucial differences such as those between newer and older franchisees, we also look at this indicator based on years in operation. We find similar results regardless of how long a franchisee has owned the business. This suggests that current concerns have existed for an extended period of time.
When asked about future plans, only 15% of respondents anticipate doing the same thing in five years. While only 14% anticipate retirement, 70% anticipate either owning a different business or being an employee for another business.
Should these patterns persist, many franchises will encounter significant challenges in the coming years. At the very least, a very large number of new franchisees will be needed to maintain the current infrastructure and revenues. These new franchisees will be harder to find if current franchisees are not prepared to provide positive referrals. Some franchisors may choose to ignore these trends and could very well see a decline in their franchise network.
More enlightened franchisors will look inward to determine if the patterns we have identified are reflected within their network. Should these patterns be confirmed and reversed, short term benefits would likely include a reduction in costly internal litigation. Longer term trends would include a larger and growing franchise network plus a growing dominance within their respective industries.
One of the goals of the National Franchisee Survey is to identify many of the reasons for franchisee dissatisfaction within a franchise network. This is, as we see it, the first step to reversing negative trends within the industry.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Monday, June 21, 2010
Franchises Seen as Path to Financial Independence
Franchisees have different reasons for getting involved in their business. Some believe that owning a franchise is a path to financial independence. Others feel they need more control in their lives and that owning a business provides this control. For others, it may be the need for greater flexibility. And yet others may feel that the new business is complementary to an existing business.
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
In an effort to better understand these reasons, the National Franchisee Survey asks respondents why they first got involved in franchising. We believe that the first step to understanding franchisee satisfaction is to understand the reasons for operating a franchise.
The most common response to this question, by far, is that individuals perceived franchising as a path to financial independence.
We looked closer at this by considering the number or years a franchise has been in operation, the gender of respondents, ethnicity, region of the country and other criteria. Regardless of the breakdown, financial independence remains the top response for each and every category of respondent.
The two tables presented here are typical of others that were reviewed for this article. In all instances, over 50% of respondents cite a desire for financial independence as a reason they first got involved in franchising. Depending on the correlating criteria (ethnicity, region of country, years in operation, etc.), the percentage of respondents citing a desire for financial independence exceeded 70%.
Looking deeper, there are some subtle differences noted by correlating data between two independent questions. These differences suggest possible trends that we hope to follow in the coming years. The responses we have seen suggest that there are differences between what men and women perceive to be important. More women, for example, state financial independence as being a reason for becoming involved in franchising. They also report flexibility as the second most important reason. In contrast, men are more likely to consider franchising as a solution to being unemployed or as a way of having greater control.
Looking at this information based on the number of years a franchisee has operated their business presents quite different information. Interesting, if not yet definitive, is that franchisees in operation for “1 to 4 years” and “10+ years” report similar percentages for three of the five reasons cited. These two time periods roughly correspond to the current and last economic slowdowns in the USA. It may also be relevant to note that franchisees in business the shortest period of time (under 4 years) are less likely to report either unemployment or greater control as reasons for getting involved in franchising. We anticipate reporting on this trend as the economic climate improves to determine if these similarities are consistent during contraction and growth periods in the economy.
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Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Tuesday, June 8, 2010
Time to Profitability Shorter in Less Rural, More Populated Areas
Time to Profitability Shorter in Less Rural, More Populated Areas
(Newer franchisees taking longer to become profitable)
It is often said that the most important criteria in determining success for a local business is location. What this means, however, has always been subject to interpretation.
A downtown business may have lots of potential customers but also lots of competition, high rent and more staff to service these customers. A rural business may have fewer potential customers, less competition and fewer fixed costs such as rent. Success depends on how a business is able to balance its revenues and expenses to produce the single factor that defines viability – profit. While a successful business involves many qualitative factors not measured in the National Franchisee Survey , we are able to look closer at some demographic information.
For businesses in operation 10+ years, one third of respondents state that they reached profitability in less than one year. Over 50% state that they reached profitability in less than three years. This is a dramatic contrast to newer franchises where less than half report being profitable in the same period of time. The more recently a business has opened, the longer it appears to take for them to achieve profitability. As a basis for comparison, Table 1 includes the percentage of stores not yet profitable based on years in business. As expected, this percentage decreases over time.
Franchises located in population centers of 250,000+ (Table 2) report achieving profitability in a much shorter period than those in smaller population centers. Frequently, these larger population centers are more costly areas in which to operate and often have more competition. Nevertheless, these operations report a much faster time to profitability.
Likewise, we found that franchises located in rural areas (Table 3) had a longer time to profitability than their urban and suburban counterparts.
Despite what can be assumed to be higher operational costs and cash flow requirements, it appears that franchises located in more urban and higher population centers took considerably less time to become profitable than those located in smaller/rural areas.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Monday, May 24, 2010
Local Store Advertising – Yellow Pages Dominate, Internet Advertising Lags
Yellow Pages remains the most common form of Local Store Marketing utilized by franchisees.
Yellow Pages advertising is utilized by 69% of respondents to the National Franchisee Survey , followed by Print advertising –newspapers (58%) and e-mail to an internal distribution list (57%.) Purchased e-mail lists (4%), Television (14%), Billboard (15%) and Website banner advertising (17%) are the least commonly utilized forms of local store advertising by franchisees.
Click to view accompanying table.
Looking at local store advertising correlated against number of years a local franchise has been in business presents what is, to me, a surprising pattern. Print Yellow Pages is utilized by 100% of respondents that have been in business for less than a year. Other forms of local advertising have almost no representation among these businesses during their first year of operation.
After a local franchise has been in operation for at least a year, we note significant usage of virtually all forms of local advertising. This appears to be a period when franchisees experiment with different forms of advertising during which Newspaper (69%) and Yellow Pages (62%) advertising are dominant. After four years in business, we begin to notice a reduction in the use of these other forms of advertising as noted by the increasing dominance of Yellow Pages advertising and a reduction in usage of all other forms of advertising. After ten years in business this migration appears to be complete. Local franchise owners once again rely on Yellow Pages advertising with 83% of respondents reporting its use. More notable, however, is the dramatic reduction in use of virtually all other forms of advertising.
If one looks at the most experienced store owners for guidance, it appears that they find Yellow Pages advertising to be most suitable for promoting their local businesses. While Internet advertising in all its forms retains a presence, the reduced use of these advertising methods suggests that Internet advertising may not yet produce the same measurable results as print media.
Despite the inroads made by the Internet, Social Media and other technologies, the responses we’ve received to date from the National Franchisee Survey suggest that local franchise owners are not yet comfortable with the use of new media. The most experienced store owners appear to rely on Yellow Pages advertising to the near exclusion of all other options.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Yellow Pages advertising is utilized by 69% of respondents to the National Franchisee Survey , followed by Print advertising –newspapers (58%) and e-mail to an internal distribution list (57%.) Purchased e-mail lists (4%), Television (14%), Billboard (15%) and Website banner advertising (17%) are the least commonly utilized forms of local store advertising by franchisees.
Click to view accompanying table.
Looking at local store advertising correlated against number of years a local franchise has been in business presents what is, to me, a surprising pattern. Print Yellow Pages is utilized by 100% of respondents that have been in business for less than a year. Other forms of local advertising have almost no representation among these businesses during their first year of operation.
After a local franchise has been in operation for at least a year, we note significant usage of virtually all forms of local advertising. This appears to be a period when franchisees experiment with different forms of advertising during which Newspaper (69%) and Yellow Pages (62%) advertising are dominant. After four years in business, we begin to notice a reduction in the use of these other forms of advertising as noted by the increasing dominance of Yellow Pages advertising and a reduction in usage of all other forms of advertising. After ten years in business this migration appears to be complete. Local franchise owners once again rely on Yellow Pages advertising with 83% of respondents reporting its use. More notable, however, is the dramatic reduction in use of virtually all other forms of advertising.
If one looks at the most experienced store owners for guidance, it appears that they find Yellow Pages advertising to be most suitable for promoting their local businesses. While Internet advertising in all its forms retains a presence, the reduced use of these advertising methods suggests that Internet advertising may not yet produce the same measurable results as print media.
Despite the inroads made by the Internet, Social Media and other technologies, the responses we’ve received to date from the National Franchisee Survey suggest that local franchise owners are not yet comfortable with the use of new media. The most experienced store owners appear to rely on Yellow Pages advertising to the near exclusion of all other options.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Tuesday, May 4, 2010
Women in Franchising – Better Educated, Risk Averse
Are women who own franchised businesses more or less successful than their male counterparts?
A recent NPR news item informed that women earn $0.77 for every dollar earned by men. That same day, an unrelated newspaper article described how women have a greater aversion to risk than men.
Li-Jun Ji, a professor at Queen’s University in Kingston Ontario, studies how decisions are made. According to Ms. Ji, men are “natural risk takers.” She suggests that “women tend not to get the same kick out of taking risks.”
“When it comes to a risky situation which usually involves some kind of uncertainty, women tend to perceive negative consequences to be more likely and perceive negative consequences to be more severe.”
Li-Jun Ji, professor, Queen’s University, Kingston, ON
Globe and Mail, April 24, 2010
Franchising, a risky business venture, falls into this category where Ms. Li suggests that women are more likely to “perceive negative consequences to be more severe.” Does this impact on those likely to get involved in franchising, and their relative success? Preliminary data from FranchiseFacts’ National Franchisee Survey (currently underway) was used to develop profiles for men and women who own a franchise.
Women, when opening a franchise, report as being more educated than their male counterparts but lacking a comparable level of prior business experience. These women are more likely than men to open their franchised business in a smaller population center (under 250,000 people) that is rural or suburban.
As franchisees, the vast majority (61%) of these women have owned their business for no more than four years whereas 70% of men have owned their franchised business for more than five years. Women also work fewer hours in their business.
Women report as having a different perception of their business as compared to their male counterparts. Women are more likely to feel that their business does not meet their own financial expectations. They are also less optimistic about the long term growth potential of their business. Finally, women participating in the survey are less likely to believe that their own business is superior to that of their competition.
Being more risk averse, one might expect women to incur less debt and have lower business expenses. They would also be less likely to gamble on future growth. In a poor economy, these actions should result in a mitigation of business losses and possibly higher profits. The data I’ve reviewed suggests otherwise. More than 81% of women report that their business is not yet profitable, as compared with 31% of men. Possibly related to this, 61% of female respondents owned their business for less than four years. Their male counterparts report operating their business for a much longer period of time. Perhaps women entered franchising much later in the business cycle and, consequently, far more of them had not yet achieved profitability by 2009. If correct, one would expect the above statistics to look more favorable for women in 2011 and beyond.
The responses we’ve received to date from the National Franchisee Survey do suggest that Ms. Ji’s findings are consistent with what occurs in franchising if one considers some of the demographic results. Smaller population centers, and rural and suburban areas, are usually less costly areas to open a business and are more consistent with an aversion to risk. As more data becomes available, and covering more years, I hope to revisit this topic and rebuild the above profiles.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
A recent NPR news item informed that women earn $0.77 for every dollar earned by men. That same day, an unrelated newspaper article described how women have a greater aversion to risk than men.
Li-Jun Ji, a professor at Queen’s University in Kingston Ontario, studies how decisions are made. According to Ms. Ji, men are “natural risk takers.” She suggests that “women tend not to get the same kick out of taking risks.”
“When it comes to a risky situation which usually involves some kind of uncertainty, women tend to perceive negative consequences to be more likely and perceive negative consequences to be more severe.”
Li-Jun Ji, professor, Queen’s University, Kingston, ON
Globe and Mail, April 24, 2010
Franchising, a risky business venture, falls into this category where Ms. Li suggests that women are more likely to “perceive negative consequences to be more severe.” Does this impact on those likely to get involved in franchising, and their relative success? Preliminary data from FranchiseFacts’ National Franchisee Survey (currently underway) was used to develop profiles for men and women who own a franchise.
Women, when opening a franchise, report as being more educated than their male counterparts but lacking a comparable level of prior business experience. These women are more likely than men to open their franchised business in a smaller population center (under 250,000 people) that is rural or suburban.
As franchisees, the vast majority (61%) of these women have owned their business for no more than four years whereas 70% of men have owned their franchised business for more than five years. Women also work fewer hours in their business.
| Women (46% of respondents) |
Men (54% of respondents) |
|
| Age | 40-64 yrs -- 82% | 40-64 yrs -- 78% |
| Education | College/University or Higher - 84% High School - 0% |
College/University or Higher - 81% High School - 4% |
| Years to Profitability | Not yet profitable - 89% | Under 1 yr - 25% 1-3 yrs - 27% Not yet profitable - 25% |
| Prior Business Experience | None - 11% Bus Exp / No Mgmnt exp - 27% Middle Management - 39% Upper Management - 23% |
None - 8% Bus Exp / No Mgmnt exp - 14% Middle Management - 39% Upper Management - 39% |
| Years in Operation | 1-4 yrs - 61% 5-10 yrs - 25% 10+ yrs - 9% |
1-4 yrs - 29% 5-10 yrs - 41% 10+ yrs - 29% |
| Hours Worked | Under 40 hrs/week - 18% 45+ hrs/week - 75% |
Under 40 hrs/week - 10% 45+ hrs/week - 78% |
| Meeting Financial Expectations | Meeting Expectations - 7% Below Expectations - 93% |
Meeting Expectations - 15% Below Expectations - 77% |
| Investment of Money/Time greater than expected | Agree - 57% | Agree - 56% |
| Optimistic about long term growth of the business | Agree - 11% | Agree - 33% |
| My operation is superior to the local competition | Agree - 52% | Agree - 78% |
| Profitability | Unprofitable - 81% | Unprofitable - 31% |
| Local Population | Small centers (under 250k) - 68% | Large centers (250k+) - 66% |
| Density | Urban - 32% Suburban - 55% Rural - 14% |
Urban - 39% Suburban - 51% Rural - 10% |
Women report as having a different perception of their business as compared to their male counterparts. Women are more likely to feel that their business does not meet their own financial expectations. They are also less optimistic about the long term growth potential of their business. Finally, women participating in the survey are less likely to believe that their own business is superior to that of their competition.
Being more risk averse, one might expect women to incur less debt and have lower business expenses. They would also be less likely to gamble on future growth. In a poor economy, these actions should result in a mitigation of business losses and possibly higher profits. The data I’ve reviewed suggests otherwise. More than 81% of women report that their business is not yet profitable, as compared with 31% of men. Possibly related to this, 61% of female respondents owned their business for less than four years. Their male counterparts report operating their business for a much longer period of time. Perhaps women entered franchising much later in the business cycle and, consequently, far more of them had not yet achieved profitability by 2009. If correct, one would expect the above statistics to look more favorable for women in 2011 and beyond.
The responses we’ve received to date from the National Franchisee Survey do suggest that Ms. Ji’s findings are consistent with what occurs in franchising if one considers some of the demographic results. Smaller population centers, and rural and suburban areas, are usually less costly areas to open a business and are more consistent with an aversion to risk. As more data becomes available, and covering more years, I hope to revisit this topic and rebuild the above profiles.
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FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Monday, April 19, 2010
Dunkin Donuts, Meineke rank highest in Franchisee Satisfaction
FranchiseFacts’ Index (FFI) is a comparative rating created to measure franchisee satisfaction with their business and their franchisor. This index is designed to allow us to evaluate franchises in different industries using a standard criteria. We believe that, over time, relative changes to this rating should correspond to changes in franchisee satisfaction.
The FFI is a weighted average calculation based on responses to ten specific questions in the National Franchisee Survey. Each question addresses, specifically or indirectly, factors that we believe impact on a franchisee’s level of satisfaction with their business and/or their franchisor. The maximum rating available is 105 points. (This is not a percentage calculation and should not be evaluated as such.)
While the survey is in progress, we provide this peek at the current index ranking for the top and bottom franchisees based on responses to date.
The FranchiseFacts Index can be correlated against demographic information to evaluate specific franchises. For example, an FFI rating can utilized to determine if franchisee satisfaction levels vary by sex, ethnicity, education level, overall profitability or other factors. The FFI can also be used to determine if franchisee satisfaction is improving over time. Looking at this information for a specific franchise could help to target franchise sales efforts with an eye toward increased profitability for both franchisor and franchisee.
This is the first publication of information utilizing the FFI. I look forward to hearing from the industry (franchisors, franchisees and others) with comments or suggestions regarding the compilation and use of the index. The remainder of this article explains how the FranchiseFacts Index is derived.
=========================================
Following are the specific questions in FranchiseFacts’ National Franchisee Survey comprising the FranchiseFacts Index (FFI) and their numeric contribution to the index.
Some factors in this index, such as financial success and future prospects, are at least partially dependent on the overall economy. Other factors, such as franchisee relationship with their franchisor, are directly impacted by the franchisor. The index blends these factors to develop a single rating that we believe to be measurable at a specific point in time and also over a period of time.
We remain open to comments about the derivation of this index. When the current National Franchisee Survey is closed later this year, FFI results will be included in the Franchisee Satisfaction Report that will be available.
------
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Follow our Blog at franchisefactsusa.blogspot.com
e-mail: FranchiseFacts1@gmail.com
The FFI is a weighted average calculation based on responses to ten specific questions in the National Franchisee Survey. Each question addresses, specifically or indirectly, factors that we believe impact on a franchisee’s level of satisfaction with their business and/or their franchisor. The maximum rating available is 105 points. (This is not a percentage calculation and should not be evaluated as such.)
While the survey is in progress, we provide this peek at the current index ranking for the top and bottom franchisees based on responses to date.
 |
The FranchiseFacts Index can be correlated against demographic information to evaluate specific franchises. For example, an FFI rating can utilized to determine if franchisee satisfaction levels vary by sex, ethnicity, education level, overall profitability or other factors. The FFI can also be used to determine if franchisee satisfaction is improving over time. Looking at this information for a specific franchise could help to target franchise sales efforts with an eye toward increased profitability for both franchisor and franchisee.
This is the first publication of information utilizing the FFI. I look forward to hearing from the industry (franchisors, franchisees and others) with comments or suggestions regarding the compilation and use of the index. The remainder of this article explains how the FranchiseFacts Index is derived.
=========================================
Following are the specific questions in FranchiseFacts’ National Franchisee Survey comprising the FranchiseFacts Index (FFI) and their numeric contribution to the index.
 |
 |
Some factors in this index, such as financial success and future prospects, are at least partially dependent on the overall economy. Other factors, such as franchisee relationship with their franchisor, are directly impacted by the franchisor. The index blends these factors to develop a single rating that we believe to be measurable at a specific point in time and also over a period of time.
We remain open to comments about the derivation of this index. When the current National Franchisee Survey is closed later this year, FFI results will be included in the Franchisee Satisfaction Report that will be available.
------
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Follow our Blog at franchisefactsusa.blogspot.com
e-mail: FranchiseFacts1@gmail.com
Monday, April 5, 2010
Profit (or lack of it) in Multi Unit Franchisee Operations
Is multi store ownership a path to increased profitability? While FranchiseFacts’ National Franchisee Survey provides some support to this belief, our preliminary results suggest that multi store operations may be riskier, and result in a greater likelihood of business losses. Put differently, these preliminary results suggest that multi store ownership leads to either higher profitability or no profitability. There does not appear to be a middle ground here.
For a multi store operation to be successful, two factors should be considered. First, the business must be one where tasks and knowledge requirements are sufficiently straightforward so that training of staff is simple. Second, the franchisee must have above average business and organizational skills. Operating more than one location requires that the owner’s expertise be split among multiple locations. In some instances, the owner lacks the skills to make this work. In other instances, the skills that make a single operation successful are not in sufficient supply to support multiple operations. When both factors are in place, the franchisee is likely to be extremely successful in operating their multi unit operation. When one or both of these factors are lacking, the result appears more likely to be failure. Dunkin Donuts is just one example of a major franchise that I think has been quite successful with their multi store ownership business model. The tasks needed to service one customer are relatively simple. And an employee normally services one customer at a time. Other franchises, such as The UPS Store, require a higher level of knowledge, experience and organizational skills that I don’t think are conducive to a multi unit franchisee operation.
The FranchiseFacts survey asks respondents to provide their profitability for the prior calendar year. Later in the survey, respondents report on the number of locations owned. This article considers the correlation between these two questions.
Not surprisingly, single location operations account for 86% of all respondents with declining percentages for multiple store operations. To better evaluate the profitability of multi store operations, the table below separates single unit franchisees from multi unit franchisees.
It can reasonably be assumed that franchisees who own more units have invested more money in the hope of greater profitability. That is, opening four locations costs more than opening a single location and should result in higher overall profits. However, there is also the risk of greater financial losses since success is never guaranteed. This is consistent with our preliminary findings. Franchisees with four or five units (the highest level reported) were the only ones to report in excess of $100,000 in total profitability and accounted for 60% of all responses in this category. However, 40% of those franchisees with four or five units report being unprofitable. There was no middle ground. Reporting suggests either high profitability or no profitability.
At the other extreme, single location franchisees account for 86% of survey respondents. They report a wider range of incomes with 17% reporting income in the range of $35,000 to $100,000.
Most surprising are the results from franchisees owning two or three locations. None reported profitability in excess of $35,000 for the most recent calendar year and a disproportionate percentage report being unprofitable during the same period of time.
Note: When reading the accompanying table, the “All Respondents” column adds up to 100%. Likewise, the three Location columns combine to reflect 100% of respondents (subject to rounding.) For example, franchisees owning 4-5 Locations AND reporting $100,000+ in profitability last year reflect 3% of all respondents.
------
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at
www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at
franchisefactsusa.blogspot.com
For a multi store operation to be successful, two factors should be considered. First, the business must be one where tasks and knowledge requirements are sufficiently straightforward so that training of staff is simple. Second, the franchisee must have above average business and organizational skills. Operating more than one location requires that the owner’s expertise be split among multiple locations. In some instances, the owner lacks the skills to make this work. In other instances, the skills that make a single operation successful are not in sufficient supply to support multiple operations. When both factors are in place, the franchisee is likely to be extremely successful in operating their multi unit operation. When one or both of these factors are lacking, the result appears more likely to be failure. Dunkin Donuts is just one example of a major franchise that I think has been quite successful with their multi store ownership business model. The tasks needed to service one customer are relatively simple. And an employee normally services one customer at a time. Other franchises, such as The UPS Store, require a higher level of knowledge, experience and organizational skills that I don’t think are conducive to a multi unit franchisee operation.
The FranchiseFacts survey asks respondents to provide their profitability for the prior calendar year. Later in the survey, respondents report on the number of locations owned. This article considers the correlation between these two questions.
Not surprisingly, single location operations account for 86% of all respondents with declining percentages for multiple store operations. To better evaluate the profitability of multi store operations, the table below separates single unit franchisees from multi unit franchisees.
| All Respondents | 1 Location | 2-3 Locations | 4-5 Locations | |
| 86% of reporting franchisees | 9% of reporting franchisees | 5% of reporting franchisees | ||
| $100,000+ | 3% | 3% | ||
| $75k-$100k | 6% | 6% | ||
| $50k-$75k | 6% | 6% | ||
| $35k-$50k | 5% | 5% | ||
| $20k-$35k | 3% | 2% | 2% | |
| Under $20k | 17% | 17% | ||
| Not profitable | 61% | 52% | 8% | 2% |
Percentages subject to rounding
It can reasonably be assumed that franchisees who own more units have invested more money in the hope of greater profitability. That is, opening four locations costs more than opening a single location and should result in higher overall profits. However, there is also the risk of greater financial losses since success is never guaranteed. This is consistent with our preliminary findings. Franchisees with four or five units (the highest level reported) were the only ones to report in excess of $100,000 in total profitability and accounted for 60% of all responses in this category. However, 40% of those franchisees with four or five units report being unprofitable. There was no middle ground. Reporting suggests either high profitability or no profitability.
At the other extreme, single location franchisees account for 86% of survey respondents. They report a wider range of incomes with 17% reporting income in the range of $35,000 to $100,000.
Most surprising are the results from franchisees owning two or three locations. None reported profitability in excess of $35,000 for the most recent calendar year and a disproportionate percentage report being unprofitable during the same period of time.
Note: When reading the accompanying table, the “All Respondents” column adds up to 100%. Likewise, the three Location columns combine to reflect 100% of respondents (subject to rounding.) For example, franchisees owning 4-5 Locations AND reporting $100,000+ in profitability last year reflect 3% of all respondents.
------
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at
www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at
franchisefactsusa.blogspot.com
Monday, March 22, 2010
Average Franchisee Reported Earnings -- $149k+ or under $50k?
"He uses statistics as a drunken man uses lamp-posts... for support rather than illumination." - Andrew Lang (1844-1912)
To me, one of the more frustrating franchise statistics repeatedly quoted is average income. Inevitably, this statistic always suggests that the typical franchisee earns $100,000+ per year. To cite one example, the USA Franchisee Statistics page on www.franchiseseek.com states that “In 2000 …. over 30% of franchisees earn over $149,000 per year.” I recently read a press release citing a similar figure for 2009.
It is my opinion that such a high figure falls into the “too good to be true” category. In a country where the average income is under $50,000 a year and the unemployment rate is in the 10% to 20% range, this figure just doesn’t sound right. Even in good times, such a high average income sounds exceptionally good. If we are in a recession, as I believe we are, is it possible that franchised business operations are a safe haven offering a guaranteed substantial income during these difficult economic times?
The National Franchisee Survey asks respondents to report if their business was profitable and, if profitable, their profitability over the most recent calendar year (2009). Our preliminary findings are that only 3% of respondents earned more than $100,000 over the past calendar year and only 15% claimed to earn in excess of $50,000 a year. This is quite a contrast to the $149,000 figure cited above. Being in the early days of the survey, which will run for most of the calendar year, it is difficult to determine if these percentages will remain consistent. At the other extreme, 61% of respondents state that their business is not profitable.
To be clear, none of this is suggestive of problems in the franchise industry. The economy has ended an overheated phase where too many people paid far too much for businesses. They financed their businesses rather than starting slow and building through natural growth. Overly optimistic revenue projections were used to justify high purchase prices, opening expenses and operational expenses. These businesses, and their owners, now are saddled with financial obligations that many are unable to pay out of current revenues. Consolidations (closures) are inevitable.
To further put these percentages in perspective, it is generally accepted that most small businesses do not survive their first ten years. And we have gone through a period of approximately ten years during which the economy expanded to a point where it is no longer sustainable. This leads me to assume that a higher percentage of small businesses are operating at reduced profitability than at any other point in my lifetime.
FranchiseFacts explores franchisee profitability in detail as part of its National Franchisee Survey. In the coming months, we will attempt to provide a more detailed understanding of this topic. The insights we provide will remain preliminary since the survey is currently in progress. Results reported in this blog are subject to change as more surveys are received throughout the year. Once the survey is closed, our final report will make this information available in its totality.
In the coming months, this blog will look closer at some of the attributes and demographics of profitable franchises.
------
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at
www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at
franchisefactsusa.blogspot.com
To me, one of the more frustrating franchise statistics repeatedly quoted is average income. Inevitably, this statistic always suggests that the typical franchisee earns $100,000+ per year. To cite one example, the USA Franchisee Statistics page on www.franchiseseek.com states that “In 2000 …. over 30% of franchisees earn over $149,000 per year.” I recently read a press release citing a similar figure for 2009.
It is my opinion that such a high figure falls into the “too good to be true” category. In a country where the average income is under $50,000 a year and the unemployment rate is in the 10% to 20% range, this figure just doesn’t sound right. Even in good times, such a high average income sounds exceptionally good. If we are in a recession, as I believe we are, is it possible that franchised business operations are a safe haven offering a guaranteed substantial income during these difficult economic times?
The National Franchisee Survey asks respondents to report if their business was profitable and, if profitable, their profitability over the most recent calendar year (2009). Our preliminary findings are that only 3% of respondents earned more than $100,000 over the past calendar year and only 15% claimed to earn in excess of $50,000 a year. This is quite a contrast to the $149,000 figure cited above. Being in the early days of the survey, which will run for most of the calendar year, it is difficult to determine if these percentages will remain consistent. At the other extreme, 61% of respondents state that their business is not profitable.
To be clear, none of this is suggestive of problems in the franchise industry. The economy has ended an overheated phase where too many people paid far too much for businesses. They financed their businesses rather than starting slow and building through natural growth. Overly optimistic revenue projections were used to justify high purchase prices, opening expenses and operational expenses. These businesses, and their owners, now are saddled with financial obligations that many are unable to pay out of current revenues. Consolidations (closures) are inevitable.
To further put these percentages in perspective, it is generally accepted that most small businesses do not survive their first ten years. And we have gone through a period of approximately ten years during which the economy expanded to a point where it is no longer sustainable. This leads me to assume that a higher percentage of small businesses are operating at reduced profitability than at any other point in my lifetime.
FranchiseFacts explores franchisee profitability in detail as part of its National Franchisee Survey. In the coming months, we will attempt to provide a more detailed understanding of this topic. The insights we provide will remain preliminary since the survey is currently in progress. Results reported in this blog are subject to change as more surveys are received throughout the year. Once the survey is closed, our final report will make this information available in its totality.
In the coming months, this blog will look closer at some of the attributes and demographics of profitable franchises.
------
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at
www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at
franchisefactsusa.blogspot.com
Monday, March 8, 2010
Resolving Franchisee and Franchisor Conflict
FranchiseFacts was created for the sole purpose of improving communications between franchisor and franchisee. We believe that is best addressed through Franchisee Satisfaction reporting.
As discussed in my previous posting, the source of many franchisor/franchisee conflicts can often be reduced to a disagreement on how profitability is determined. The challenge, however, is to find a better way of communicating between both parties.
Larger corporations have a different way of gathering and analyzing information than smaller operations. For this reason the larger corporations can be seen as slower to react and slow at decision making. Franchisors must make decisions that support many different franchisees with different situations and priorities. What is good for one franchisee may not be good for others. Regardless of what programs are introduced or not introduced by a franchisor, many are likely to disagree.
What FranchiseFacts does is gather information that results in a better understanding of the franchisee perspective. Put differently, we report on Customer Satisfaction (or Franchisee Satisfaction) for the franchising industry. This information is then communicated to the franchise community through our reports.
In the coming months and years, we plan on providing information that addresses diverse topics such as;
• The makeup of franchisees by gender and ethnicity
• Overall franchisee profitability by industry, region and other criteria
• Franchisee satisfaction with existing franchisor relationship by product/service and department
• Perceived quality of services provided by franchisor
• Perceived effectiveness of advertising and marketing efforts by franchisor
• Developing linkages between local store revenues and key holidays/major events
• Understanding which advertising venues are most popular among franchisees
Our survey(s) will evolve over time to reflect changes in the economy and suggestions from franchisees, franchisors and other interest groups.
Beginning with my next posting, we will take a peek inside the current survey and present some of our preliminary findings.
I encourage you to participate in the survey at http://www.FranchiseFactsUSA.com and also to submit your own suggestions for changes to our survey or methodology.
------
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
As discussed in my previous posting, the source of many franchisor/franchisee conflicts can often be reduced to a disagreement on how profitability is determined. The challenge, however, is to find a better way of communicating between both parties.
Larger corporations have a different way of gathering and analyzing information than smaller operations. For this reason the larger corporations can be seen as slower to react and slow at decision making. Franchisors must make decisions that support many different franchisees with different situations and priorities. What is good for one franchisee may not be good for others. Regardless of what programs are introduced or not introduced by a franchisor, many are likely to disagree.
What FranchiseFacts does is gather information that results in a better understanding of the franchisee perspective. Put differently, we report on Customer Satisfaction (or Franchisee Satisfaction) for the franchising industry. This information is then communicated to the franchise community through our reports.
In the coming months and years, we plan on providing information that addresses diverse topics such as;
• The makeup of franchisees by gender and ethnicity
• Overall franchisee profitability by industry, region and other criteria
• Franchisee satisfaction with existing franchisor relationship by product/service and department
• Perceived quality of services provided by franchisor
• Perceived effectiveness of advertising and marketing efforts by franchisor
• Developing linkages between local store revenues and key holidays/major events
• Understanding which advertising venues are most popular among franchisees
Our survey(s) will evolve over time to reflect changes in the economy and suggestions from franchisees, franchisors and other interest groups.
Beginning with my next posting, we will take a peek inside the current survey and present some of our preliminary findings.
I encourage you to participate in the survey at http://www.FranchiseFactsUSA.com and also to submit your own suggestions for changes to our survey or methodology.
------
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com
Monday, February 22, 2010
How does a franchise define profitability?
To most franchise owners, profitability is THE single definition of success. The greater the profits, the greater the success.
It has been my experience that nearly all franchisee/franchisor conflicts revolve around profitability. Franchisors have developed a business model that they believe should be successful for a local franchisee. The local franchisee is obligated by contract to follow various standards, purchase certain equipment and sell certain products or services. Over time, conditions change and the franchisor has the right to change some or all of these franchisee obligations. This should not be a problem, in theory, since everyone is seeking to maximize profitability.
So where is the problem?
To me, the problem is in the definition of profitability.
A franchise owner sells product or provides service in return for compensation from the consumer. After paying all bills, any remaining monies are the profit for the franchise owner. The franchisor, however, has a different revenue stream.
A franchisor derives revenue primarily through royalty payments (along with sales of franchise licenses and some other activities.)
There are times when a franchisor can undertake logical actions that increase their revenue stream through royalties – which are based on franchisee revenues – while also negatively impacting on local store profitability. Perhaps a franchisor attempts to increase store traffic through couponing or free offers that franchisees perceive as being too aggressive. Alternatively, a franchisor may end up competing with franchisees through Internet web sites or direct accounts with larger customers. Some recent examples of disagreement are restaurant franchisees who complain about what they believe to be money losing products or promotions.
Some would suggest that the franchisor pay more attention to franchisee profitability, sometimes by basing royalty payments on this determination. The franchisor, however, may argue differently. After all, the franchisor does not have control over local store operations. A poorly operated franchise could suffer from excessive expenses due to poor local management. Furthermore, an operation where the franchise owner chooses to have only a limited involvement is less likely to be successful. Finally, the franchisor normally does not have control over how funds are dispensed for a local franchise. From this perspective, it makes no sense for the franchisor to derive their revenue stream from anything but top line revenues.
By defining profitability differently for a franchisor and franchisee, it is easy to understand the reason for these conflicting priorities. It can also explain disagreements as to the interpretation of a franchise agreement that most likely appeared to be reasonable when it was signed many years ago. The risk of disagreement on a wide range of business issues will increase, as does internal conflict, as the definition of profitability diverges between franchisor and franchisee.
The FranchiseFacts survey, at http://www.FranchiseFactsUSA.com, looks at franchisee profitability in detail. To us, profitability is not one number that can be presented as indicative of the industry. Our Franchisee Satisfaction reports should be able to correlate profitability with diverse factors such as number of locations, rural vs. urban, education and other criteria. It is our intent to delve into the factors that most impact on profitability. Survey participants are assured that their individual responses will always remain anonymous.
-----
Next posting: Resolving Franchisee and Franchisor Conflict
-----
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at http://www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
e-mail: FranchiseFacts1@gmail.com
It has been my experience that nearly all franchisee/franchisor conflicts revolve around profitability. Franchisors have developed a business model that they believe should be successful for a local franchisee. The local franchisee is obligated by contract to follow various standards, purchase certain equipment and sell certain products or services. Over time, conditions change and the franchisor has the right to change some or all of these franchisee obligations. This should not be a problem, in theory, since everyone is seeking to maximize profitability.
So where is the problem?
To me, the problem is in the definition of profitability.
A franchise owner sells product or provides service in return for compensation from the consumer. After paying all bills, any remaining monies are the profit for the franchise owner. The franchisor, however, has a different revenue stream.
A franchisor derives revenue primarily through royalty payments (along with sales of franchise licenses and some other activities.)
There are times when a franchisor can undertake logical actions that increase their revenue stream through royalties – which are based on franchisee revenues – while also negatively impacting on local store profitability. Perhaps a franchisor attempts to increase store traffic through couponing or free offers that franchisees perceive as being too aggressive. Alternatively, a franchisor may end up competing with franchisees through Internet web sites or direct accounts with larger customers. Some recent examples of disagreement are restaurant franchisees who complain about what they believe to be money losing products or promotions.
Some would suggest that the franchisor pay more attention to franchisee profitability, sometimes by basing royalty payments on this determination. The franchisor, however, may argue differently. After all, the franchisor does not have control over local store operations. A poorly operated franchise could suffer from excessive expenses due to poor local management. Furthermore, an operation where the franchise owner chooses to have only a limited involvement is less likely to be successful. Finally, the franchisor normally does not have control over how funds are dispensed for a local franchise. From this perspective, it makes no sense for the franchisor to derive their revenue stream from anything but top line revenues.
By defining profitability differently for a franchisor and franchisee, it is easy to understand the reason for these conflicting priorities. It can also explain disagreements as to the interpretation of a franchise agreement that most likely appeared to be reasonable when it was signed many years ago. The risk of disagreement on a wide range of business issues will increase, as does internal conflict, as the definition of profitability diverges between franchisor and franchisee.
The FranchiseFacts survey, at http://www.FranchiseFactsUSA.com, looks at franchisee profitability in detail. To us, profitability is not one number that can be presented as indicative of the industry. Our Franchisee Satisfaction reports should be able to correlate profitability with diverse factors such as number of locations, rural vs. urban, education and other criteria. It is our intent to delve into the factors that most impact on profitability. Survey participants are assured that their individual responses will always remain anonymous.
-----
Next posting: Resolving Franchisee and Franchisor Conflict
-----
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at http://www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
e-mail: FranchiseFacts1@gmail.com
Monday, February 8, 2010
What is a Franchise?
Dictionary.com defines a franchise as “the right or license granted by a company to an individual or group to market its products or services in a specific territory.” So a franchise, by definition, is “a store, restaurant, or other business operating under such a license.”
Many people, if not most, use the term “franchise” without understanding its meaning. A single franchise may choose to operate under different business models depending on their corporate goals. Some franchised operations (an estimated 70% or more) are independently owned and operated. Others are corporate owned. Yet others operate via multiple layers of ownership whereby a regional license is given to a group that is responsible for opening or selling franchises within a selected territory.
These differences are important to the way franchises choose to operate. Stores owned by a corporate franchise are easier to control because store managers will more easily take direction from a corporate office. Independently owned businesses, however, require that conflicting goals be resolved. Independent operators are directly responsible for business losses and have ownership of all profits. As a result, they tend to scrutinize more closely, and be more critical of, company wide initiatives that they feel do not add to bottom line profitability and/or their own personal success.
Our goal is to improve the communication process between franchisees and franchisors so that conflicts are minimized or eliminated. However, we can only succeed at this with your help. We need store owners and managers to participate in our survey at www.FranchiseFactsUSA.com. The information you provide will allow us to understand what works and what does not work within the franchise community. Only then can we report this information to the benefit of the industry.
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Next posting: Defining success for a franchisee and for a franchisor
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Many people, if not most, use the term “franchise” without understanding its meaning. A single franchise may choose to operate under different business models depending on their corporate goals. Some franchised operations (an estimated 70% or more) are independently owned and operated. Others are corporate owned. Yet others operate via multiple layers of ownership whereby a regional license is given to a group that is responsible for opening or selling franchises within a selected territory.
These differences are important to the way franchises choose to operate. Stores owned by a corporate franchise are easier to control because store managers will more easily take direction from a corporate office. Independently owned businesses, however, require that conflicting goals be resolved. Independent operators are directly responsible for business losses and have ownership of all profits. As a result, they tend to scrutinize more closely, and be more critical of, company wide initiatives that they feel do not add to bottom line profitability and/or their own personal success.
Our goal is to improve the communication process between franchisees and franchisors so that conflicts are minimized or eliminated. However, we can only succeed at this with your help. We need store owners and managers to participate in our survey at www.FranchiseFactsUSA.com. The information you provide will allow us to understand what works and what does not work within the franchise community. Only then can we report this information to the benefit of the industry.
------
Next posting: Defining success for a franchisee and for a franchisor
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Monday, January 25, 2010
Welcome to the FranchiseFacts Blog!
Having spent ten years operating a franchised business, I’ve had first hand experience dealing with the day to day challenges of working with a franchisor that has some level of control over how my local business operates. It has been my experience that most conflicts between franchisee and franchisor can be explained by a breakdown in communication. Both parties often speak a slightly different language, have different measures of success and conflicting priorities.
One of the businesses I most admire is JD Power. This business was based on a single individual’s belief that customer satisfaction is THE most important criteria for success. Understanding what motivates the customer, and then finding ways to best service them is the key to success. He convinced one auto company to work with him to measure customer satisfaction levels and used this information to increase the overall profitability of his client (Toyota.) This approach was then adopted by the entire auto industry and has since spread to many different industries.
The impetus for FranchiseFacts was the problem outlined in paragraph one. The JD Power business model was utilized to develop a solution. Franchising is unique in that the customer to a franchisor is the franchisee rather than the ultimate consumer. This adds a level of complexity and confusion that prevented the JD Powers business model from being embraced within the franchising community.
After two years of planning, we believe we have developed a model for measuring franchisee satisfaction throughout the entire franchise industry. This is significant if it can help both franchisees and franchisors to operate more effectively and increase overall profits through cost reduction AND revenue generation. Given the size of the franchising industry, our goal is to help a very large number of individuals and businesses. At over $600 B, franchising is larger than the automobile, computer, truck and airplane industries COMBINED. And it employs as many people as these industries COMBINED. An estimated 75% of all franchises are owner operated (the remainder being corporate owned.)
Our slogan, Capturing the franchise experience, describes our purpose. Through our surveys we have begun gathering information from franchise owners and store managers. This information will be used to convey franchisee satisfaction levels throughout the franchise community. More about the importance of measuring satisfaction levels will appear in my next posting.
FranchiseFacts can only succeed with your help. We can report results to the community but we need Franchise Owners and Store Mangers to step up and participate in the surveys we post. Only by working together can we all benefit. So I encourage everyone to dedicate 20 minutes (at most) to participating in the survey at www.FranchiseFactsUSA.com. All survey participants will have the option of receiving survey results directly via e-mail.
This blog will share select insights from our surveys as appropriate, with more detailed results being provided to those who have participated in the survey.
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Next posting: What exactly is a franchise?
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Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
e-mail: FranchiseFacts1@gmail.com
One of the businesses I most admire is JD Power. This business was based on a single individual’s belief that customer satisfaction is THE most important criteria for success. Understanding what motivates the customer, and then finding ways to best service them is the key to success. He convinced one auto company to work with him to measure customer satisfaction levels and used this information to increase the overall profitability of his client (Toyota.) This approach was then adopted by the entire auto industry and has since spread to many different industries.
The impetus for FranchiseFacts was the problem outlined in paragraph one. The JD Power business model was utilized to develop a solution. Franchising is unique in that the customer to a franchisor is the franchisee rather than the ultimate consumer. This adds a level of complexity and confusion that prevented the JD Powers business model from being embraced within the franchising community.
After two years of planning, we believe we have developed a model for measuring franchisee satisfaction throughout the entire franchise industry. This is significant if it can help both franchisees and franchisors to operate more effectively and increase overall profits through cost reduction AND revenue generation. Given the size of the franchising industry, our goal is to help a very large number of individuals and businesses. At over $600 B, franchising is larger than the automobile, computer, truck and airplane industries COMBINED. And it employs as many people as these industries COMBINED. An estimated 75% of all franchises are owner operated (the remainder being corporate owned.)
Our slogan, Capturing the franchise experience, describes our purpose. Through our surveys we have begun gathering information from franchise owners and store managers. This information will be used to convey franchisee satisfaction levels throughout the franchise community. More about the importance of measuring satisfaction levels will appear in my next posting.
FranchiseFacts can only succeed with your help. We can report results to the community but we need Franchise Owners and Store Mangers to step up and participate in the surveys we post. Only by working together can we all benefit. So I encourage everyone to dedicate 20 minutes (at most) to participating in the survey at www.FranchiseFactsUSA.com. All survey participants will have the option of receiving survey results directly via e-mail.
This blog will share select insights from our surveys as appropriate, with more detailed results being provided to those who have participated in the survey.
-----
Next posting: What exactly is a franchise?
------
Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
e-mail: FranchiseFacts1@gmail.com
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