Critical Support Areas for New Franchisees (Embracing New Franchisees when Unhappy Franchisees Depart)

There is considerable documentation through this report that many franchise owners are unhappy with their current situation and are contemplating changes to their career.

While some of this dissatisfaction can be attributed to a poor business climate, this report documents many areas that are more controllable. For example, many franchisees report dissatisfaction with most aspects of their relationship with their franchisor. Satisfaction ratings rarely exceed 55% and many rating categories receive satisfaction ratings in the teens. The exceptions to this are new store and pre-opening support, both of which are of short duration and received some of the best satisfaction ratings. It appears that many franchisors may be more effective at providing this shorter duration support to newer franchisees than they are at providing ongoing support.

A majority of respondents feel that the services provided by their franchisor are poor, and that the franchisor does not understand what it takes to be successful at the franchisee level. While there may be a valid difference of opinion on what is needed to be successful within a franchise, franchisors should take note that many of these franchisees would not be prepared to provide a positive franchise referral to prospective franchisees. When it comes to business generation through marketing, advertising, the Internet and in store materials, most respondents also gave their franchisor low ratings.

The bottom line is that many current franchisees appear to be contemplating or actively preparing for a career change. Only 16% of respondents anticipate continuing to operate their franchised business five years from now. While some of these individuals may choose to remain in franchising, we anticipate that the franchise industry will need to embark on a major recruitment drive to attract new recruits to the industry.

Regardless of the reason, an infusion of new franchisees will be a necessity simply to maintain the current industry 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 (and other communications) to learn about industry best practices. They are learning new, and often proprietary, computer software. And new franchisees are cost conscious after investing significant sums of money to open a new business.

The accompanying table highlights types of ongoing support (as opposed to the shorter duration new franchisee support) from our survey that we feel are most important to the new franchisee.

This table shows 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.

We have found that franchisees are dissatisfied with some types of ongoing support that we feel are most important to the new franchisee. Only 12% of respondents report that their franchise newsletter is a useful informational resource while 53% 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 18% 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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This article is a reprint from FranchiseFacts' Franchisee Satisfaction Survey Annual Report 2010 - Survey Results and Analysis. Perry Shoom is the founder of FranchiseFacts - a research firm that conducts private and public research for the Franchise Industry. The 2011 Franchisee Survey is in progress at http://www.franchisefactsusa.com/. If you are a franchise owner or store manager, please participate. FranchiseFacts does not disclose identifying information that may be provided by survey respondents. Your participation in a FranchiseFacts survey means that you can honestly and openly communicate your responses without disclosing your identity to third parties. FranchiseFacts is an Approved Survey Vendor for IAFD

Gender Differences among Franchise Owners

(How a weak economy is having a greater impact on female franchisees)

A perusal of the data would suggest that women are less successful in franchising than their male counterparts. A higher proportion of female franchise owners report having college or university degrees than their male counterparts. Women are less likely to have upper or middle management experience, while a higher percentage of female respondents report having no business experience at the time they opened their franchise.

When selecting a location for their business, women are more likely to locate in areas with a smaller population and less likely to locate in urban areas.

Once operating their business, female franchise owners are less likely to work the long hours needed to make their businesses successful. 18% of female respondents report working under 40 hours a week. This compares with 8% for their male counterparts.

In terms of success, women report taking much longer to achieve profitability in their business. While 50% of male respondents report achieving profitability in under three years, only 9% of women report achieving profitability during the same time. In total, 87% of female respondents report that their business is not yet profitable as compared with 37% of male respondents.

A closer look at this data, however, suggests that these differences have nothing to do with gender. Female respondents are much newer to franchising than their male counterparts. 61% of female respondents have owned their business for less than four years compared with 31% of male respondents. Having opened their franchised businesses much later in the business cycle, female owned businesses appear to have been more susceptible to the downturn in the economy as evidenced by the higher percentage of unprofitable businesses and lower percentage of those meeting their own financial expectations (9% for females, 21% for males.)

In the long run, women may be better tuned to the realities of business than their male counterparts. They seem to have more balance in that they are less likely to be working 50+ hours each week. This may explain why female respondents are more likely to give their local competition credit for running a good operation. While 55% of female respondents report that their operation is superior to the local competition, 78% of male respondents are of the same opinion.


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This article is a reprint from FranchiseFacts' Franchisee Satisfaction Survey Annual Report 2010 - Survey Results and Analysis. Perry Shoom is the founder of FranchiseFacts. The 2011 Franchisee Survey in progress at http://www.franchisefactsusa.com/. If you are a franchise owner or store manager, please participate. Please note that FranchiseFacts does not disclose identifying information that may be provided by survey respondents. Your participation in a FranchiseFacts survey means that you can honestly and openly communicate your responses without disclosing your identity to third parties.

Franchisee Satisfaction Indicators Suggest Contraction in Franchising

If franchisee satisfaction is, as we believe, an important indicator of future actions, the next few years could be challenging for the franchise industry.

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 and 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. Franchisors can improve their operations and growth by understanding current levels of franchisee satisfaction and its impact.

Franchisees have had an exceptionally difficult year - possibly the worst of their working lives. National Franchisee Survey respondents report that few are meeting their financial goals, seeing increased revenues/profits or would consider recommending their current franchise to a prospective franchisee. The vast majority do not expect to be with their current franchise in five years time. Yet a majority consider their operation to be superior to that of the competition.

The following table shows three leading indicators that are incorporated into our National Franchisee Survey.

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 these indicators 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 16% 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 of the existing franchise networks. 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.

This article is a reprint from FranchiseFacts' Franchisee Satisfaction Survey Annual Report 2010 - Survey Results and Analysis. The full report is available at www.franchisefactsusa.com/reports.php

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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!

Please note that FranchiseFacts does not disclose identifying information that may be provided by survey respondents. Your participation in a FranchiseFacts survey means that you can honestly and openly communicate your responses without disclosing your identity to third parties.
Follow our Blog at franchisefactsusa.blogspot.com

Female Franchise Owners Most Affected by Weak Economy

In an economy showing few signs of growth, 87% of female owned franchised businesses report they are not profitable. This compares with only 23% of male owned franchised businesses. 9% of female respondents report that their business became profitable within three years, as compared to 50% of male respondents. Other findings from the National Franchisee Survey suggest that women have more recently embraced franchised business ownership than their male counterparts. This suggests that the poor results for female business owners may be related to the currently weak economy. Opening a business much later in the business cycle, women owned businesses were less likely to have been profitable when the economy worsened.

These and other insights about franchisee owned businesses are provided in a new report by FranchiseFacts. The report, titled Franchisee Satisfaction Survey Annual Report 2010, is now available.

The findings come from FranchiseFacts’ 2010 National Franchisee Survey, a survey of franchise owners throughout the United States and Canada. The report explores all aspects of their business including franchisee satisfaction (relations with their franchisor), to current profitability, business development initiatives, business trends and future plans.

At over $600 B in annual revenues, the franchising industry is larger than the combined automobile, computer, truck and airplane industries. And it employs at least as many people. A better understanding of this industry is important to understanding the direction of our economy in terms of small business growth and new jobs.

This report provides numerous insights worthy of further research. For example, 66% of respondents report a decline in business over the past year while 45% anticipate a decline in the coming year. Also, 50% of respondents anticipate closing existing locations in the future.

This report is available, free of charge, at www.FranchiseFactsUSA.com.

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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

Franchisee Survey Annual Report FREE to Respondents - Survey Period for 2010 National Franchisee Survey Ends October 31

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

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