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.

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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.

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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
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.


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.

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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