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10 Biggest Franchising Mistakes

By Anita du Toit, Partner - Franchising Plus

margin

1. Not charging a royalty on sales but rather adding margin to product

This is problematic as the franchisor will not benefit from a franchisee adding additional products or services to its range.  Also, according to the Competition Act, the franchisee can’t be forced to purchase goods from the franchisor, especially if similar products are available at a lower price.  If franchisees have to pay exorbitant prices for the products, they will engage in deviant behaviour such as selling products from competitors or they will simply buy elsewhere.  The franchisor needs to supply franchisees at market related prices and constantly ensure that the business model remains viable.

undercapitalised2. Being undercapitalised

A franchisor without capital reserves will not be able to support a network adequately, especially in the beginning phases of the franchise.  This could lead to franchisees losing money and could ultimately damage the brand and the business.

No Marketing fee3. Not charging a marketing fee

This should not be a selling point for the franchise! Marketing is essential to build the brand and the more fees are collected, the more impactful the marketing will be to the benefit of franchisee and franchisor.  It’s very difficult to introduce a marketing fee at a later stage, it should be charged from inception. Also, franchisors should note that the marketing fund should be administrated separately in accordance with the CPA.

Supplying other agents that are not franchisees at the same price4. Supplying other agents/outlets that are not franchisees at the same price

Franchisees pay a premium to become part of a franchise.  To supply other distribution outlets that are not part of the franchise at the same price negates the benefit of being part of the franchise group and will lead to franchisee dissatisfaction and an unhappy network.  It will also have a negative impact on the trust that franchisees have in the franchisor.

Falling behind competition5. Falling behind the competition

It’s the franchisor’s role to ensure that constant research and development is done to stay ahead of competition.  Whether technical product enhancements or updating the look and feel of a restaurant, if the brand starts losing ground to the competition due to an outdated offering the blame falls squarely on the franchisor’s shoulders.

Testing in progress6. Not testing the business model adequately

The franchisor needs to ensure that the business model is viable. The franchisee must be able to achieve a complete return on investment after drawing a market related salary within 3-4 years.  If the business model is not profitable enough to achieve this, the business is not franchiseable.

Selecting the wrong franchisees7. Selecting the wrong franchisees

Franchising Plus firmly believes that franchises are “awarded” to deserving candidates, as opposed to sold to any person that meets the funding criteria.   The success of a franchise depends on selecting franchisees that share the franchisor’s vision and values and that are committed to the brand.  Franchisees need to be hands-on operators and not passive investors, as the owner operator effect lies at the heart of successful franchising.  Franchising Plus offers a psychometric tool called the E test, which compares a potential franchisee to the profile of the ideal franchisee to aid franchisors in the selection process.  Contact us for more information.

Not unlocking the power of collective buying8. Not unlocking the power of collective buying

One of the major benefits of joining a franchise network should be access to collective buying.  This should include all aspects relevant to operations, from products to marketing material and uniforms.  The franchisor should constantly look for the best deals for the franchise network and pass this benefit on to franchisees.

Not looking for colletive sales opportunities9. Not looking for collective sales opportunities

A franchise network has the benefit of national representation in most instances.  This unlocks opportunities for tenders or other national contracts, and the franchisor should actively look for opportunities like this for franchisees.

no listerning to the opinion of franchisees10. Not listening to the opinion of franchisees

It’s vital to create platforms for franchisees to voice their opinion and channel their input, for example by implementing a franchisee representative council.  Too often franchisors dismiss the opinions of franchisees as “gripes”. They are at the coalface and understand the needs of the customer best.  Franchising Plus facilitates focus groups and franchisee surveys to obtain the input of franchisees and make recommendations on implementing improvements to the franchisor. If you are interested in this service, contact us