By Daniela Koulikov posted September 16, 2021

What is success? Based on our work with tens of thousands of franchisees, while money is important, many also see success as making a difference in their local communities, working with their families, providing opportunities for young people, having flexibility in their lifestyle, and improving the lives of their customers.

What about franchisors? While strong financial performance is of course essential, we have found that enduring, high performing franchisors are also driven by a broader definition of success. For instance, how their business is impacting the environment and the well-being of the people who work in their networks.

At FRI we encourage franchisors and franchisees to embrace this broader definition of success. However, we also believe the importance of solid financial performance must not be underestimated.

FRANCHISING FACTS: Understanding the Metrics Mindset

As part of our research at FRI, we analyse the factors that influence whether franchisees will recommend your franchise, commit to staying with the business, and engage with your initiatives. We call this the ACE Mindset, and we measure it using our ACE Franchisee Satisfaction Survey.

There is currently a multi-speed economy depending on industry types and lockdown laws. As a result, a proportion of franchisees are thriving, while others are struggling. We think it is important that franchisors understand the relationship between franchisee profitability, the ACE Mindset, and their general satisfaction. Here are a few actionable insights:

Tenure and financial satisfaction: There is a significant positive correlation between a franchisee's tenure and their financial satisfaction. It takes time to build a customer base and master what matters in running a profitable business. Franchisors need to keep in mind that franchisees newer to their business are more likely be anxious about their financial performance, and need closer monitoring.

Satisfaction with marketing and systems: We have also discovered a strong relationship between franchisee satisfaction with profitability, and satisfaction with their franchisor's marketing programs and business systems. Marketing that doesn't deliver profitable sales is seldom appreciated, while business systems that help franchisees track their metrics are clearly valued.

Optimism and enjoyment: Franchisee profitability is strongly related to optimism for the future, lifestyle balance, and enjoyment of running the business. While people who are more profitable are likely to feel better about their business and their life, this also works the other way. Franchisees who enjoy their work and are optimistic, tend to generate a more positive culture that drives a better customer experience and better sales! So pay attention to your culture.

Profitability drives advocacy: There is a strong correlation between franchisee satisfaction with financial performance and the ACE Mindset, particularly their tendency to recommend your franchise to others. So if you want to grow your network through referrals (which are the best quality leads), focus on the profitability of your existing franchisees.

Please get in touch with John Cooksey from our team if you'd like help to understand the drivers of the ACE Mindset in your network. And read on for some best practice tips, and training to equip your franchisor team to do better in this area.

BEST PRACTICE TIPS: How to support your franchisees' financial success

There are many ways a franchisor team can support the sustainable financial success of franchisees. Here are several. 

#1. Make franchisee profitability a franchisor KPI. Most high performing franchisors include franchisee profitability as one of the franchisor's KPIs, which means they monitor this closely, and report on it to the Board.

#2. Ensure there is a mutually fair ROI. Fairness is hardwired into the brain. If franchisees do not believe they are getting a fair return on their investment and energy, they will become resentful, especially if the franchisor is seen to be doing well. Franchisors need to share some of the pain, especially in the current climate.

#3. Look for low-hanging fruit to reduce expenses. Every cent off a franchisee's expenses is a cent onto their profit. Franchisors should be continually looking for ways to help franchisees save money. As rent is often one of the largest expenses, support in rental negotiations will be particularly valuable.

#4. Assist franchisees to access financial support. Most jurisdictions are still offering government assistance for small businesses. Franchisees may not be taking advantage of these due to ignorance or disorganisation.  However to protect your brand make it clear that franchisees must adhere to laws and ethical guidelines around funding programs.

#5. Protect cash reserves. The ongoing uncertainty of trading conditions means franchisees should, where possible, keep working capital in their business. It would not be unreasonable for franchisors to encourage franchisees to maintain their cash reserves at this time, as they may need to draw on these if lockdowns occur.

#6. Build business acumen. Now is a great time for franchisors to invest in developing the financial acumen of franchisees. This can involve tips, tools and techniques on what metrics franchisees should be monitoring, and how to get the most out of the financial management tools that are available to them.

#7. Structure financial meetings and review money flow. Field consultants should have regular financial discussions with franchisees to review financial trends in their business and ensure there is a cash flow plan to pay mandatory expenses.

#8. Ensure franchisees know their break-even. One of the most important numbers in a business is the sales figure needed to hit profitability. Helping franchisees to calculate their break-even point will create greater focus in their day-to-day activities, and reduce the anxiety associated with uncertainty.

#9. Don't assume more money equals more happiness. While there is a strong correlation between franchisee profitability and business satisfaction, this is not always the case. While you can be sure that a franchisee who is losing money is unlikely to be happy, we have observed that some of the most profitable franchisees can also be the unhappiest if they feel disrespected or treated unfairly.

#10. Be thoughtful about your marketing. Don't take the easy route with aggressive discounting when there may be better ways to generate profitable sales. Wherever possible, be strategic around marketing programs to ensure they are protecting franchisee profitability.

#11. Develop your field consultants. Field consultants can have a significant impact on the financial performance of franchisees through goal-setting, sales coaching, and analysing the KPIs that drive profitability. This is why having a metrics mindset is an important aspect of our Field Manager Bootcamps.

UPCOMING WORKSHOPS

FRI has a range of professional development programs to upskill your team. These include:

  • Franchisor Excellence Masterclasses for senior executives responsibile for creating strategy or leading division teams.
  • Culture of Franchising Workshops for supprt office staff who interact with franchisees as part of their work.
  • Field Manager Bootcamps for field managers who support franchisees to improve their businesses.

Click here for details.

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