To put money into a franchise is a large step forward, which may give you both successes and failures. Such a process starts with a careful study of franchising so as to pick the one that perfectly matches your entrepreneurial aspirations.
Today, make a journey with us through the most important steps in franchisor research and indicators to be noted. We will explore what are the first steps, the role of the internet in franchises, the criticality of knowing the franchise territory, attending tradeshows and exhibitions, having conversations with franchisees, and identifying KPIs which will show you the franchisor’s prospects of becoming successful.
Where to start when conducting franchise research
The quest for franchise research might seem to be a herculean thing to embark on at first. But, a rightful process accompanied by professional guidance can help you come out with a decision that is right for you and can definitely help in getting you on the path of becoming a successful franchisee.
The Internet Is Your Friend
In this age of the Internet, it has undoubtedly become a must-have tool for franchise research. This is a wealth of data you may get from different franchising options. You could begin by looking for franchises that are suitable for you, considering your interests, skills and how much you want to invest.
Go to search engines, franchise directors and specialised websites which have franchising opportunities posted. This is the first stage, where you will have to decide whether or not to continue your research.
Attend Franchise Expos and Conventions
A widely used platform to meet franchisors is a franchising show or convention. That offers a great chance to gather information, ask any questions you have and gain a lot of experience. The diversity in the events gives you the privilege to explore a range of franchise opportunities all at the same spot thus, you can conveniently pick the best one for yourself. Communicate with direct franchisors; network with other attendees from the forums, including the franchisees.
Talk to Current and Former Franchisees
Crossing off one of the most memorable parts of your investigation involves talking to present and past franchisees. They could become the franchisee’s eyes and ears, sharing information concerning the minutiae of the franchise, daily struggles and general happiness with the franchisor. Do a preparatory exercise of the questions you need to ask the franchisees, and you should also speak to more than one franchisor to be able to appreciate all the aspects.
Understand Franchise Fees
Learning how to handle franchise fees is the first thing we must address. The franchise fees can be wildly different between franchisors, thus, it is imperative to understand how they work and where they stand against your profitability. Research the initial franchise fee, the ongoing royalties, and any other fees or expenses that might come up when considering the franchise. Know in advance that your fees will be used for these purposes, and be on the lookout for the impact of those fees on your financial performance.
Read Franchise Disclosure Documents (FDDs)
FDDs, or Franchise Disclosure Documents, offer a lot of data for the entrepreneur to understand the franchisor’s business model, and fees, legal requirements, and more. The study of the FDD is a very essential part of the franchise research. In the process of acquiring a franchise, one has to get familiarised with all the legal documents including the franchise agreement and disclosure document.
Evaluate Training and Support Programs
Extensive training and support-equipped programs are key to the extensive journey of franchise establishment. Judge the quality of franchisor training and assistance programs you may need in order to make them commensurate with your business needs and objectives. Differing support levels will be offered by disparate franchisors. This, therefore, propels you to conduct exhaustive research to choose the one that matches your needs.
Know Franchise Management
Understanding the franchise management team is essential. Investigate the backgrounds, track record, and professional expertise of the management team so as to be content with the fact that they have relevant skills and sufficient experience to support franchisees. You wouldn’t want to invest in a franchise of such kind and risk losing your capital because of the ineffectuality of management.
Consider Legal and Regulatory Requirements
While franchise businesses are governed by different legal and regulatory requirements, operating a franchise business is not necessarily easier or more complicated than running an independent business.
Engage a franchise lawyer from the very beginning phase of the process for help in calculating these rules and for guidance in compliance with all the local, state and federal laws. This feature is supposed to keep you from making ill-fated moves that might bring you heavy losses in the future.
Ask the Franchise Development Representative Questions
They are capable of giving you operational details and answers to any of your questions. Don’t be afraid to ask them questions to enable you to make knowledgeable choices. Such items may range from operational expenses to client support, training kits, regulatory compliance, and others.
The first thing you have to do to begin your franchise research is to keep in mind the mentioned steps and tips so that when the time comes, you can make an educated decision and select the best franchise for yourself based on your goals and interests.
KPIs to Follow
As a franchisor, you should not only look into the franchise’s key performance indicators but go deeper each time. KPIs help in getting various insights into the many aspects of the franchise system, helping you make informed decisions. Let’s explore each of these KPIs in more detail:
Services
Probably the most important KPI you should look for is service quality. The franchise should offer an impeccable service that’s distinguishable or at least superior to all other regional competitors.
Moreover, the niche should be tight enough, so you can cater to specific needs and limit your direct competition, but also large enough so there is enough demand on the market. Deep house cleaning franchise is the perfect example. The niche is large enough to offer a vast customer base but specific enough that you won’t have to compete against regular cleaning companies.
Naturally, finding a franchisor that not only offers such services but also knows how to cater to the customer’s specific needs is instrumental to your success.
Profitability
A thriving franchise should consistently exceed the financial expectations of its franchisees. Franchisees should be able to recoup their total investment within three years or less.
For investors, the market rewards a minimum return on investment (ROI) of 25% or higher, with a cash-on-cash return of 50% or more, after paying managerial expenses and before debt service. Owner-managed businesses should aim to replace their current income by year two and achieve a growth of 25%-35% in earnings by year 3.
Customer retention
The franchise must have a clear understanding of what its target customers value and the business model must consistently deliver more value than it charges in the pricing. Providing superior value builds customer loyalty and supports franchisee success.
Implementing a Net Promoter Score (NPS) is a great start. NPS is a KPI that measures customer satisfaction and loyalty. It is calculated using a formula that considers how likely customers are to recommend a business to others and the degree of loyalty customers have to the brand.
While every business owner seeks to ensure customer satisfaction, individual customer ratings may not offer a comprehensive picture. NPS aggregates customer feedback to summarise overall satisfaction with a franchise.
This KPI provides a holistic view of customer sentiment and their likelihood of becoming brand advocates. NPS serves as a valuable tool for assessing customer satisfaction, which is central to a franchise’s success.
Communication with franchisees
Frequency and quality of communication between franchisors and franchisees, one of the cornerstones for fostering positive franchisee-franchisor relationships, is key for addressing concerns and sharing updates.
Assess how responsive the franchisor is to franchise inquiries or concerns. Quick and effective responses to franchisee needs can enhance the overall experience of franchisees.
Growth
Growth is a central focus for franchisors, and effective strategies for achieving growth are integral to the franchising model. However, to gauge the effectiveness of growth strategies, data analysis is essential.
The growth rate is a KPI that facilitates the comparison of sales data across different periods. It offers insights into whether a business is expanding and at what rate. By examining how sales figures change from one period to the next, franchisors and franchisees can assess the impact of their growth strategies.
Sustainability
Franchise brands should demonstrate their resilience and be able to fight back against such threats like disruptive technologies or any better business model. Sustainability acts as a key indicator that the franchise’s value proposition can withstand market turbulence.
Evaluating a franchisor against these KPIs is essential to identify potential risks and rewards associated with the franchise opportunity. A franchise with strong unit-level economics and defensible positioning is more likely to thrive and offer lucrative prospects for franchisees.
Conversely, weaknesses in these areas can lead to growth plateaus and less appealing franchise sales results.
Why is franchise research important?
The significance of carefully researching a franchise option, which entails assessing the industry prospects, product or service offerings, and the prospective franchise’s financial health, is paramount.
Doing the research on franchisors gives you a chance to spot the loopholes that might have been ignored and the pitfalls and risks especially associated with that franchise opportunity. It introduces you to the nitty-gritty of franchising, and therefore you get to make informed decisions that nearly eliminate the possibility of investing in a franchise that won’t work out for you.
Furthermore, through research, you obtain a definite sense of financial outlooks and return on investments that a franchise could bring. This is critical because it allows you to set up a budget and ascertain that you’re ready for the capital.
In addition, responsible research makes it possible for a business to combine its choice of franchise with personal and professional targets. This gives you assurance that the franchise you are selecting is in line with your interests, skills, and short/long-term goals.
First and foremost, the aim that research plays the most important role is that you can pinpoint a franchisor with significant upside potential and a proven record of successful history. This, in return, can maximise your opportunities to gain profitable returns as well as long-term profitability.
To sum it all up
Getting ready to become an owner of a franchise which is a successful one, takes a lot of studying of franchisors. It includes complete research on critical analysis, which is followed by a profound knowledge of all such factors that help in the success of a franchise opportunity.
Ultimately, franchise research is a wise investment of time and effort, which are indispensable for building a career as a franchisee that is marked with success and rewards
