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Franchisors failing in franchisee support: report

Wednesday, 29 June 2011 | By Michelle Hammond
New research reveals 100% of Australian franchisors track franchisee sales but only a third regularly track franchisee expenses and profits, suggesting there is a disconnect between franchisors’ sales targets and the support they provide to franchisees.

 

The Asia-Pacific Centre for Franchising Excellence, which operates through Griffith University, has unveiled new research findings claiming to measure franchisor performance.

 

The Franchise Performance Metrics is based on a survey of more than 60 Australian franchisors, representing some 8,000 franchisees.

 

According to Lorelle Frazer, director of the centre and lead researcher, the research will enable franchisors to compare their model with other Australian franchisees across a range of key performance indicators.

 

“Previously, franchisors could benchmark across a specific industry, however not across ‘franchisor-ing’, allowing little guidance on franchise support or recruitment costs,” professor Frazer says.

 

Based on the research, Frazer says the franchise industry fared quite well throughout the global financial crisis, although there were a few surprising results.

 

“Franchisors generally reported their model achieving sound return on investment for franchisees. However, the data reveals, on average, franchisees are slower making payments, which could indicate cashflow pressure,” she says.

 

“Also, while franchisee numbers grew by 16% on average, most groups actually recorded a loss in existing franchisee numbers, with new sales not increasing overall existing numbers.”

 

A lack of franchisee support could be to blame for the loss of numbers; the survey reveals that while 100% of franchisors track franchisee sales, only half track franchise margins and even fewer (33%) track franchisee expenses and profits on a regular basis.

 

Frazer says the results are concerning given the factors are key drivers of business profitability.

 

“[They are also] vital measures to provide an accurate view of trends and emerging issues within a franchise model. This highlights there may be a gap in franchise field support and franchisee needs.

“Field support staff is a key part of the jigsaw puzzle, as they liaise directly with franchisees. They therefore need to be equipped with the right skills – perhaps training is needed.”

 

In addition to helping franchisors improve their business models, Frazer believes the findings could be beneficial for potential franchisees by providing them with an opportunity to benchmark a particular franchise against others.

 

Similarly, David Campbell, director of Avatar Consulting – which assisted in the research – says potential franchisees rarely receive sufficient information when purchasing a franchise.

 

“This research will have great flow-on effects to both franchisors and potential franchisees. By benchmarking a franchisor’s performance, franchisees will have a clearer understanding of what they can expect from that franchise, from both a sales and a support point of view,” he says.