Analyzing franchise growth should be top on the list when doing your research on a franchise opportunity. An important measurement of the health of any given franchise company is the rate of growth of their overall system.
Specifically, the franchise system should be growing at a rate that shows it is healthy and vital. It should be able to attract a number of new people to the system. But, the franchise system should not be adding new franchisees so quickly that it will have problems managing the growth.
It is best to analyze the franchise growth during your evaluation process. This will help you to know the development status of the company. On top of that, you will also have an idea of how stable the company is before signing up any franchising contract.
What are the ways in analyzing franchise growth? What does franchise growth mean by the way?
What is Franchise Growth?
A healthy company should perform and have increasing franchise development. Franchise growth is the status and sustainability of a company based on its three factors: revenue, units, and franchisees.
The first factor, which is checking the company’s revenue, is the simplest way to analyze franchise growth.
• Are a franchisor’s income and revenue fluctuate?
• How does the company cope with it?
The quick response of a franchisor in the worst-case scenario is vital to maintaining a good income and revenue for the company.
The second factor that affects franchise growth is its total number of units. You can research when the company started to franchise and compare the span to their active units now.
• Are they growing slowly, on average, or is the company growing drastically?
The information you will gather will either impress you or decide to look for a different opportunity.
The last but not the least factor that affects franchise growth is the number of franchisees. Of course, the more active franchisees in a company the more worthy it is for your trust to invest in. But be careful.
• Quality is still beyond quantity.
Franchisees should be able to reach success in running their business. The successful number of franchisees is the result of the company’s support during the startup phase.
What are the 4 ways in analyzing franchise growth? Learn the details below.
Ways in Analyzing Franchise Growth
Now that you know what franchise growth is and its 3 factors, you have to understand the ways in analyzing franchise growth. In this blog, you will learn the franchise growth in 4 effective ways:
If you successfully research these details, you will surely know the exact status of a company. The results will be your guide to developing your trust to invest. How will these ways help you analyze franchise growth? Let me elaborate on each item.
1. Determine the number of new franchisees added each year
This information is not usually available in the FDD so you will have to ask the franchisor for these numbers. Ask also about the number of operational support people devoted to new franchisees.
It is obvious that if a franchise system has been franchising for a number of years but has added very few franchisees, there may be problems in their system. It could be that current franchisees don’t validate well due to problems with the business model so potential franchisees are rejecting them.
Or the problem may be that the franchisor has insufficient staff to handle.
• First, in all the elements associated with getting a new franchisee up.
• And second, in running and must reject a number of qualified applicants.
Either way, a lack of new franchisees may mean this isn’t a healthy company.
How do you determine an acceptable number of new franchisees? The percentage of new franchisees to the number of total franchisees will give you a number you can use for comparison.
A good number to look for would be when the percentage of new franchisees falls somewhere between 10% and 35% of the total number of franchisees. A company currently with 100 franchisees should have the infrastructure to add up to 35 new franchisees in the coming year.
2. Compare the ratio of operational support personnel to new franchisees
Another number to look at is the ratio of operational support personnel compared to new franchisees. A ratio of one support person for every 10-20 new franchisees tells you that new franchisees are likely getting adequate preparation and support to develop their businesses.
For example, if a system of 30 franchisees adds 20 more in a year, they may be growing too rapidly and their staff may be too overwhelmed to have time for you as a new franchisee.
Full-time support personnel is one key factor, especially in your franchising startup phase. Their main job is to ensure a smooth and effective flow of the business between the franchisor and the franchisee.
A new franchisee should receive ample guidance from the operational support personnel. Enough support personnel to the number of new franchisees creates huge benefits. Such as
• Realtime assistance to franchisees if confusions arise.
• Operational support personnel can provide a quick response to troubleshooting if needed.
• Franchisees will receive immediate corrective measures based on the company policies.
It will be difficult if a franchisor cannot provide you with full-time operational support personnel. You might not able to maximize the time if you are only given a short period to be with your support.
3. Talk to existing franchisees
You will be contacting a number of existing franchisees from any system you are serious about joining. Ask them about items such as marketing effectiveness and earnings potential.
Spend a sufficient amount of time covering such areas as the training they received. Ask them as well about the initial and ongoing support they are getting.
Pay particular attention to the answers from those franchisees that have recently joined the system. Their answers will most likely reflect the type of support you would receive.
• What effective question can you ask them? Get an idea from the list below.
• How does the company provide support since you started until now?
• Are there improvements in the way the company gives marketing plans?
• Are the business strategies effective and realistic?
• Is the company able to help you in getting a high profitable return?
• When you need assistance and clarifications, how does the company respond?
Taking time in asking these questions to an existing franchisee will help you determine how does a company treat each one of them. In this stage, you can imagine what type of support you will get. You will also have an idea if the company has effective marketing strategy performances.
4. Meet the support staff
You already have spent time evaluating the numbers and talking to existing franchisees. There is a final step to take before giving a franchise company a thumbs up as a potential purchaser.
If everything looks good up to this point, you will want to personally meet the franchise staff with whom you will be working. You have to evaluate their style, professionalism, and competence. Examine them with these questions based on your experience:
• Does the staff seem warm, friendly, knowledgeable, and helpful?
• Are they able to spend time answering your questions or do they seem rushed, distracted, and overwhelmed by their busy schedule?
• Do you think the staff will be there for you, both at the beginning and also years down the road?
• Will you enjoy working with them or be frustrated by the lack of clear direction and slow response time?
How the support staff engages with franchisees is also an effective way of analyzing franchise growth. So better make a note of the impressions you get during this visit.
Remember, you will be working with them once you sign the franchise agreement. Their approach during your evaluation process could be the same all throughout.
What’s in it for you if you seriously do these 4 ways in analyzing franchise growth? There are advantages.
What are the advantages of analyzing the growth of a franchise company?
Skipping the phase o franchise growth analysis during your evaluation may put your investment at risk. But, if you successfully do this part, rest assured that you will not end up regretting choosing the right company to start your franchising business.
What are the advantages of analyzing franchise growth?
To set a proper expectation, you should always put in mind that there is no perfect company. All franchises have flaws though they do their best in providing an excellent service to their potential and existing franchisees. Be balanced in weighing the pros and cons.
There are many important elements to consider when researching a franchise business that will meet your needs and desires. A system that is successful and expanding should be right near the top of your checklist.
If you’ve done your research, for sure you are happy with all of the results. The interaction you’ve had with the franchisor can be satisfying. You can be confident that you are investigating a growing and healthy franchise system. A company that can provide you an opportunity to make your personal and professional dreams come true.
Analyzing the franchise growth can be challenging and exhausting. However, if you do this as part of your evaluation process, it can be rewarding. You won’t have sleepless nights because you are 100% sure that your investment is in good hands.
If you think there is more you want to know aside from analyzing the company growth, a franchise consultant can further assist you.
Talk to one of them or read the blog about the “Picking the Right Franchise Consultant“.