The type of support franchisees require has also changed. Franchisees are no longer requesting support only with merchandising.
Tighter margins, greater competition and pricesensitivity among consumers are creating ever increasing pressure on franchisees’ bottom lines and as a result franchisees are seeking greater financial management assistance.
Most franchisees have little training or experience in the area of financial management, and based on the Franchise Performance Metrics research conducted by Griffith University’s Asia- Pacific Centre for Franchising Excellence, many franchisors rate their field support staff as lacking skills in this area too.
Greater focus on franchisee profitability required
These new economic conditions require franchisors to place a greater focus on franchisee profitability.
Here are some tips on how to adjust your field support strategy to better service your franchisees in this new environment. The first step is to start tracking financial benchmarks across your franchise group if you don’t already.
By tracking performance across a range of financial benchmarks franchisors and franchisees can assess, monitor and improve performance. To do this effectively though, franchisees, together with their field support professionals, need to be able to accurately assess the health of their franchise and identify areas requiring greater attention, and do so at a glance.
Using franchisee data, some of it which is likely to be readily available in your franchise, such as balance sheets and profit and loss statements, can provide the tools required to turn an average performing franchisee into a top performer, when used in the right way.
If you can’t access franchisee sales data in real time you should strongly consider investing in technology which enables this – preferably cloudbased technology to maximise accessibility for field support staff.
This data can also help identify the early warning signs a franchisee is heading into trouble while there’s still time to turn the franchise unit around. Likewise the same data can also help identify where a franchisee may by skimming royalties, while also taking the emotion out of the skimming debate.
By having the right financial tools and monitoring in place you can make any discussions needed based on scientific facts, rather than hearsay or accusations.
With the right processes in place it’s even possible to identify the amount by which they are skimming.
However, without the right processes in place, and without field support professionals trained to interpret financial data, many franchises are having the value of their franchise model eroded. Skimming and poor franchisee financial management can affect the perceived return
on investment of buying into a franchise by a prospective franchisee, and although it’s an issue that can be easily addressed, many franchises haven’t yet done so.
The Franchise Performance Metrics research identified a shortfall of 24 per cent between the revenue that franchisors stated their model returned and the actual royalty revenue received from franchisees.
This evidence indicates either some franchisors are unaware of the revenue in royalties their franchise model returns, or there is a significant amount of royalty skimming happening across franchise systems.
Either way, tracking financial performance and up-skilling franchise field support professionals to focus on financial management in field visits can address this issue.
And the benefits go beyond identifying any instances of skimming to improving franchisee engagement and franchisee return on investment.
Benefits of integrating financial management in to field support
By collecting franchisee data on at least a monthly basis, field support teams can then be trained to interpret the data to create practical action plans that engage franchisees.
In order to successfully implement a financial benchmarking strategy franchise head office teams need to engage franchisees on financials first – and it doesn’t have to be as hard as it sounds when approached in the right way.
This can be done by demonstrating the benefits of such a program, which includes linking financial targets and action plans to individual franchisee personal goals, and there are a few techniques you can use to do this.
What franchisee data tools do you need?
• Balance Sheet
• Profit and Loss Statements
• POS data
You also need to have an understanding of a franchisee’s personal and lifestyle goals. If a franchisee wants to own a boat, and to afford that boat they need to bring in an extra $20,000 profit this year, then you need to break that figure down into achievable targets.
Similarly if a franchisor wants to boost profit by 10 per cent, again that figure needs to be translated into something franchisees feel can be achieved.
For example if a 10 per cent boost in franchisor profit equates to an extra $20,000 in the pocket of the franchisee (which means they can afford the boat they wanted) you now have their attention. If you then break down what the $20,000 profit is in extra sales per month and then per week, you will have a tangible target the franchisee will generally agree is possible.
Further, the franchisee is also committed to achieving that target as they clearly understand what’s in it for them.
The next step is to then get the franchisee to work out an action plan to help attract the extra sales.
Having weekly targets makes it easy to track performance on an on-going basis too.
Tracking the financial performance of your franchisees, will also help you identify the average return on investment your franchise model delivers, which can help with franchisee recruitment.
Incoming franchisees will also be able to determine roughly how long it will take them to reach breakeven and turn a profit, which will help them determine how much capital they’ll require. This will allow franchisees to have more realistic expectations, which research shows minimises the likelihood of conflict arising later in the franchise relationship.
Franchisees with realistic expectations of what franchising will be like also tend to be more satisfied with the franchise.
All these elements lead to more positive franchising experiences for both the franchisee and the franchisor.
Focusing field support on driving franchisee profitability in a way which engages franchisees will also help make the field support role a much more enjoyable process and could lead to lower levels of staff turnover.
There are also several other techniques than can be used to maximise franchisor return on investment of field support services.
Professor Lorelle Frazer is Director of Griffith University’s Asia-Pacific Centre for Franchising Excellence and one of the world’s leading franchise researchers and educators. Lorelle has been actively involved in franchising research and sectoral policy initiatives for more than 15 years. She also lectures in franchising and is a member of the Australian Competition and Consumer Commission Franchising Consultative Panel. In 2010 Lorelle was awarded the Franchise Council of Australia’s national Contribution to Franchising Award.
The Asia-Pacific Centre for Franchising Excellence aims to drive franchise sector best practice through practical, independent research and education.