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

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

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

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.

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

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

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

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 (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