When exploring the world of franchising, one might encounter numerous successful businesses. However, truly exceptional franchisors are rare. Building a strong national brand requires a brilliant, highly engaged franchisor.
The True Nature of Franchising
If a franchisee were to ask a franchisor, “What business are you in?” how would the franchisor respond? Would he/she talk about the products and services the brand offers, or would he/she explain that he/she is in the franchising business? It’s crucial for prospective franchisees to ensure that they are partnering with a franchisor who understands and excels in the franchising business.
When a business decides to franchise, it transitions from merely operating its own business to a new role: helping franchisees succeed in running their businesses. This means that the franchisor’s primary focus should be on supporting and empowering its franchisees to achieve success.
The Financial Dynamics of Franchising
The most successful franchisors don’t rely heavily on upfront franchise fees. Instead, they generate income through royalty fees or management service fees. In South Africa, these are commonly referred to as management service fees. When a franchisor’s cash flow is dependent on royalties, it indicates a genuine commitment to ensuring the financial success of its franchisees. High franchisee turnovers translate to higher royalty fees for the franchisor, creating a mutually beneficial relationship.
The Pitfalls of Unsustainable Franchising
A franchisor that depends on selling new franchises to sustain itself may face significant financial pressure. This pressure can lead to poor decision-making, such as awarding franchises to unsuitable candidates. These candidates are more likely to fail, which can tarnish the brand’s reputation among customers, suppliers, and other franchisees. Franchisors with failing franchisees are unlikely to survive in the long run.
Identifying a Successful Franchisor
To find a successful franchisor, look for one that maximizes revenue from ongoing fees while simultaneously ensuring healthy returns for its franchisees. This balance indicates that the franchisor understands the business they are in and is genuinely invested in the success of their franchisees.
In conclusion, prospective franchisees should seek out franchisors who demonstrate a deep understanding of and commitment to the franchising business. By doing so, they can ensure a fruitful and sustainable partnership.