The nature of franchising is unique in the sense that it is built by a relationship between a franchisor and franchisee of mutual interdependence and reliance. For this relationship to grow and succeed, the relationship needs to be collaborative and bound by common goals and mutual interests. The relationship is more than just a business relationship, it is also an emotional relationship built on trust, respect, care and commitment from franchisor and franchisee level; this can ultimately build or destroy the relationship.
One should pay particular attention to the franchisor-franchisee relationship to ensure that both parties draw equal benefits from the relationship. A “win-win” situation will ensure a mutually beneficial, productive and positive franchisor-franchisee relationship that contributes to the overall success of the franchise network. Thus the long-term success and continued growth of both parties depends on the franchisor-franchisee relationship.
It is important that both the, franchisor and franchisee, know their rights and responsibilities that contribute to the “win-win” situation. As a result, franchising is governed by regulations and standards to define, protect and control the quality of the network.
Comprehensive and effective communication underpins the franchisors-franchisee relationship but the participation in the franchise system is what makes a franchise succeed.
A franchisor needs to establish the boundaries of the relationship. The first and foremost responsibility of the franchisor is to develop and protect the franchise system and brand to ensure that franchisees prosper. Therefore, regulations and standards need to be communicated and enforced from the beginning of the relationship.
Seven elements of respect in a successful franchise-franchisee relationship
Successful franchise relationships is based on mutual respect. The Smart Company, an Australian company, unpacked an acronym for the word respect that helps franchisors and franchisees understand how respect evolves and how it impacts the franchise relationship.
RESPECT = Recruit + Educate + Support + Profit + Engage + Challenge + Together
- Selectivity, consistency and engagement are essential for finding great franchisees and growing relationships with them.
- It is important to be aware of the expectations being set by both the franchisor and franchisee.
- Franchisees need to be educated and trained on how to run their business successfully according to the operations and procedure manual.
- This phase should involve continuous assessment franchisee learning to ensure that they are able to deal with every situation of operating a business.
- It also provides feedback on the quality and delivery of training programmes.
- Training modules and programmes for ongoing training will ensure that standards are maintained.
- Franchisors need to provide extensive support to franchisees to assist them in running and growing a successful business. This will result in optimal operational efficiency and improvement of overall business performance.
- The franchisor needs to have a support structure at head office level to assist franchisees and field representatives to visit franchisees on a regular basis.
- Good franchisors promote effective two-way communication and support through regular field representative visits, annual conferences, regional meetings, franchise councils, additional communication platforms such as newsletters and management portals.
- A franchise concept needs to be profitable for the franchisee and franchisor.
- This needs to be a “win-win” for both parties to make the relationship sustainable
- Engaging or interacting within a relationship is an important element of the franchisor-franchisee relationship, especially with decision making that affects the other parties’ interests.
- It is important to remember that franchisees are independent business owners, so communication needs to be firm and professional and they need to feel like partners not managers. When franchisors make decisions they need to provide direction to the franchisees with a clear explanation for the decision. Franchisees have a desire to be heard, and it is important for a franchisor to listen to their needs and requests as they are on the ground dealing directly with operations and customers.
- Franchisors should have processes in place to seek engagement of franchisees e.g., regional meetings, conferences, surveys, franchise councils, field service consultants feedback portals, etc.
- Franchisors have access to resources on the ground i.e. franchisees to assist with data, trends and market or operational situations. Franchisees can provide relevant information in turn for benchmarking or network reports.
- Franchisors and franchisees should challenge each other to maximise performance and improve standards and operations to ensure optimal growth.
- A franchisor needs to do continuous research and development to improve operations, systems and control in the network.
- A franchisee will continuously strive to grow if they see value in the network.
- Franchisors and franchisees need each other, franchising is an interdependent relationship where both parties need to work together to ensure the growth and success of the franchise network.
Stages of the franchisor-franchisee relationship
According to the International Franchise Association the franchisor-franchisee relationship is divided into four stages:
- The relationship starts when a prospective franchisee goes through the recruitment process. During this stage expectations, interdependence and mutual interested and shared goals is established.
- It is very important that a franchisor discloses the necessary information and never misrepresent the opportunity as this can negatively influence the relationship and lead to legal action.
- During this phase an emotional connection is formed through the development of rapport, trust and confidence in the relationship.
- Commitment from both parties is established by entering into a franchise agreement.
- This is a very important stage for building effective and comprehensive relationships that will last long-term.
- A Franchisor should provide comprehensive initial and ongoing training to franchisees, assist with store openings, provide continuous support services, marketing and communication support, etc.
- In this stage franchisees depend on the franchisor’s experience and knowledge to support them and help them grow.
- In this stage both parties have reached a mutual understanding and expectation of the relationship.
- Franchisees expect and rely on franchisor to deliver on their roles and responsibilities to enhance the relationship and network.
- In return, the franchisor expects the same of franchisees in terms of operational aspects, royalties, maintaining standards and closely following guidelines set forth by the franchise agreement and operations manual.
- Both parties need to see continuous value to ensure a “win-win” situation
- End or new beginning
- As the franchise agreement term nears it end, a good franchisee-franchisor relationship will ensure renewal.
- This is a result of the franchisor giving continuous support and training, research and development, marketing strategies, improved systems and controls, effective procurement and distribution, etc.
Franchising is a balancing act
Balancing the franchisor-franchisee relationship can be complicated for any franchise network. One needs to fin the right balance to ensure a “win-win” scenario for both the franchisee and franchisor. If the relationship goes off balance one of the partners will be at a disadvantage and this will cause tension and unhappiness in the relationship.
In our experience there are a few factors that affect the franchisor-franchisee relationship, they include but are not limited to:
- Royalty fees and payments
Franchisees don’t always enjoy paying these fees whilst franchisors may feel that they are not earning enough for their efforts. Franchisors derive their income from royalty fees, thus in most cases this will be a variable fee based on a percentage of turnover – this amount should be fair to both the franchisee and franchisor
- Territories and locations
By law franchisors are not allowed to assign territories to franchisees, but we have a gentleman’s agreement in place to ensure that each franchisee has a designated area that would be profitable. Franchisors need to do feasibility studies on areas/locations to ensure that it would be feasible for a franchise and that the area can support it. Placing franchisees in the wrong location can be detrimental for the brand and franchise relationship.
- Marketing fund
Franchisees might have strong opinions about marketing initiatives that are working in their area. The franchisor needs to have clear marketing plans in place for national marketing and allow inputs from franchisees for local marketing. Franchisors should have controls in place to review marketing content and promotions before it gets implemented.