Franchise management shares many similarities with general business and retail management, but franchisors have specific responsibilities to protect both their own and franchisees’ business interests. Developing, implementing, and following best practices will ensure that protection and streamline the operations of both the franchisor and franchisee. They expect franchisors to provide training and support, a unified marketing strategy, allocate necessary resources, and negotiate in good faith to resolve conflicts between franchisors and franchisees.
Operational Consistency
Consistency is the one quality franchisees expect from franchisors’ franchise management. Franchisees must easily recognize consistency in franchise operations, product quality, and customer experience. They want to be assured that they have the franchisor’s full support and that they are operating a proven franchise system. Franchisees in the same system often confer and exchange ideas, and those discussions contribute to overall consistency.
- Standard operating procedures (SOPs) – A comprehensive set of standard operating procedures forms the foundation of excellent franchise management. Franchisors use these procedures to evaluate how well franchisees follow them and uphold consistency across the system.
- Brand guidelines –Franchisors can maximize their franchise management by creating brand guidelines, so franchisees benefit from the power of the brand, and consumers can easily identify local franchises.
- Centralized management – Proactive franchisors use franchise management software and a central platform to access and analyze all business components. They can also compare and contrast franchisees’ performance and determine where additional training and support may be needed.
Training and Support
Before franchisees can contribute to consistent franchise management, they require comprehensive training, which is the responsibility of franchisors. Documented operating procedures and brand guidelines put these physical materials in the hands of franchisees, but training from experts, interaction with other franchisees, and even role-playing increase the likelihood of a well-managed franchise support system, ultimately leading to increased sales for franchisees. Consistent training and support benefit franchisees in many ways:
- Quicker understanding and business launch – With a complete and up-to-date training program, franchisees can quickly understand all the elements of operating their franchises and launch their franchises sooner.
- Fewer risks – Franchisee training that covers all operating components can protect franchisees from business risks, including mistakes, financial challenges, and violations of marketing and brand protocols.
- Better financial management – How well franchisees manage their finances directly impacts franchisors’ financial stability and overall franchise management.
- A boost to franchisees – New franchisees who experience the quality of the franchisor’s training program feel motivated to follow policies and procedures and gain confidence in their ability to succeed.
- Market adaptability – Training also equips franchisees with the skills to adapt when local business and competitive conditions change, and not lose any of the brand identification and customer loyalty they’ve generated.
Performance Monitoring
Monitoring the performance of franchise KPIs is another best practice for franchisors who want consistent franchise management. Franchisors must be able to monitor performance to protect their franchise brand and promote the continuous evolution of the franchise system.
- Franchise KPIs – Although there are many franchise KPIs to monitor, sales, customer satisfaction, franchise operations, marketing, and finances are more likely to reveal crucial insights for franchisors and franchisees.
- Accountability – Franchisees are more likely to succeed when franchisors share how they will measure franchise performance and collect monitoring data. Franchisees will know precisely where they need to improve operations.
- Identifying additional support needs – Franchisors can identify where franchisees need more support and training.
- Sharing success strategies – Monitoring franchise KPIs also reveals what strategies drive revenues for the most successful franchises in the system, which franchisors can then share with underperforming franchisees.
- Better decision-making – Franchisors can make more informed decisions about franchise performance, strengthen relationships within the franchise system, and identify any risks and vulnerabilities.
Resource Allocation
Franchisors are the primary source for the many strategies, tools, and materials franchisees need to grow their franchises and contribute to the overall strength and success of the franchise system. Franchisors can improve their franchise management and achieve more consistency when all franchisees have access to these resources.
- Centralized resource platform –A digital asset management (DAM) system is a best practice for franchisors. An online platform serves as a repository for all marketing materials, including logos, brand images, advertising templates, scripts, and signage art.
- Resource guidelines – The centralized platform should also include documents, procedures, training materials, and access to the franchise support system, which focuses on helping franchisees effectively utilize all available resources.
- A dynamic repository – Marketing/Advertising materials can become stale and less effective at attracting customers to franchise locations. Franchisors must regularly create and upload new content to their resource platforms. Some franchise systems depend on seasonal sales patterns, so the platform should also include a selection for the peak seasons. Franchisors should keep informed about new marketing trends and update the platform’s content to reflect those trends.
- Financial guidance – Managing the finances of a franchise may be new to many franchisees, so franchisors must also provide financial guidance. Spreadsheets for budgets, wages, accounts receivable, accounts payable, and other standard financial data collection and analysis, as well as other financial management aids, can also be found on the central platform.
Communication and Collaboration
Excellent franchise management requires open communication and collaboration between franchisors and their franchisees, as well as among franchisees within the same system. Misunderstandings and disagreements can be avoided when franchisors share best practices and strategies that have been successful for other franchisees.
- Resolving issues quickly – Franchisors should welcome franchisees’ concerns and challenges. Franchisees should feel franchisors are listening to them and will help resolve these issues quickly.
- Avoiding problems from escalating – Open communication will reveal problems in their early stages, allowing franchisors to develop and share solutions. Franchisors can also update documents and other materials to prevent these issues from becoming future problems.
- Stronger trust – Honest communications will enhance franchise management and strengthen the franchisor-franchisee relationship, creating more trust and a willingness to collaborate to drive everyone’s success.
- Meaningful collaboration – Although franchisees operate with a degree of independence, they achieve the best results when they treat the franchise system as a collaborative opportunity. By learning from one another and sharing insights with franchisors, they help improve and expand franchisee support.
- Open communication methods – To maintain open communication and promote optimal collaboration, franchisors can initiate a communication strategy that includes regular meetings, newsletters, social media, and online content.
Legal and Regulatory Compliance
A franchise is a legal agreement between a franchisor and a franchisee and is subject to various legal regulations and franchise compliance laws. Franchisees must understand all of them and their implications, and franchisors must provide full disclosure in the franchise agreement.
- Franchise agreement – Most franchise agreements explicitly state franchisors’ and franchisees’ rights and legal responsibilities and any penalties for breach of the contract.
- Business licenses – Franchises, like most other businesses, require various licenses to operate legally. Many may be location-specific, so franchisees should be aware of which ones they may need before deciding on a location and signing a franchise agreement.
- Consumer protection laws – Franchisees must be aware of these laws, which may vary by location. These laws protect consumers from deceptive business practices and ensure the accuracy of product and service information, as well as pricing.
- Franchise compliance laws – The Federal Trade Commission (FTC) and each state have franchise compliance rules and regulations. State laws may differ from the US government and from state to state. Franchisees are advised to create a state compliance checklist to help remain current with any changes or updates.
Financial Management
As with any business, franchisors and franchisees must allocate a significant amount of their time to financial management, which is a key measure of the quality of their franchise management. Franchisors will be stymied in marketing, selling, and expanding their franchise opportunities without a solid financial footing. Franchisees should insist on as much financial transparency as possible from franchisors before committing to a franchise agreement.
- Financial planning – Financial planning is essential. Otherwise, there is no plan to monitor, evaluate, and compare day-to-day financial operations and long-term strategies to achieve financial goals. Balance sheets, cash flow statements, and income forecasts are some of the most essential planning tools.
- Budgeting – A budget estimates operating costs. Actual costs can be compared to income to determine whether the budget aligns with the overall financial planning strategies. Franchisors can create sample budgets to help potential franchisees understand the costs associated with owning a franchise. Budget flexibility and contingencies for unexpected costs also protect franchisees’ bottom lines.
- Profitability analysis – Forecasting and budgeting are numbers on spreadsheets. For them to be of the most significant benefit, franchisors should regularly analyze franchisees’ financial performance. This should provide a comprehensive picture of both successful and struggling franchisees, offering insights into their economic conditions and revealing the best locations for new units.
Marketing and Brand Management
Franchisees are unlikely to be successful without a well-conceived and proven unified marketing strategy, and they are more likely to pass on a franchise opportunity with a poor or incomplete strategy. Franchisors who can provide a comprehensive marketing strategy are apt to attract the most-wanted franchisees.
- Brand strength – The primary value of owning a franchise is that it has a well-established brand and is widely recognized by consumers. Maintaining brand consistency is a primary responsibility of both the franchisor and franchisee. Franchisors must monitor all franchisees to know they are marketing the brand correctly, which benefits all franchisees.
- Customer attraction and loyalty – In the fierce retail competition to attract customers, franchisors and franchisees with a strong, consistent franchise marketing strategy will be the winners.
- Local flexibility – Franchisors with franchise marketing expertise know their program can’t be too rigid. Franchisees need flexibility to adapt the marketing program to local economic and consumption conditions.
- Driving expansion – A comprehensive franchise marketing strategy, a highly recognized brand, and flexibility for local adaptation, along with the data to support their success, will attract new franchisees and enable franchisors to expand.
Technology Integration
Smart and successful franchisors and franchisees are eager to utilize various technologies to improve their franchise management. Retailers and most other businesses are integrating technological innovations into their operations, so franchisors and franchisees must follow suit to remain competitive. Careful planning is required to select technologies that will help a business achieve specific goals, including improved efficiency, better labor utilization, tighter financial management, and a franchise marketing strategy that generates revenue through increased sales.
- Automation – Automation technology can perform standardized tasks. These include inventory management, scheduling, and order processing, among others. Automation can help minimize manual errors and other inaccuracies.
- Cloud-based franchise management – Centralizing all franchise system’s guides, training material, documents, and other support content is another advantage for franchisors to attract new franchisees. For franchisees, the cloud is where they can store and have ready access to sales data, employee scheduling, and franchise marketing materials.
- Data analysis –Franchisees can use data analytics tools to develop sales forecasts based on past performance, track purchase patterns, and identify new consumer trends.
- Artificial Intelligence (AI) – AI and machine learning help analyze various data points, from store traffic patterns to peak shopping periods for staff allocation.
Conflict Resolution
Despite the best efforts of franchisors and franchisees to maintain good relationships, conflicts and disputes will occur and create obstacles to optimal franchise management.
- Conflict resolution policy – Many disputes can be resolved quickly and with less animosity when franchisors include a conflict resolution policy in the franchise agreement and emphasize it in the training program.
- Franchise agreement non-compliance – To protect their franchise system, franchisors are most concerned when franchisees don’t comply with the franchise agreement and other guidelines and standards. Open and honest dialogue can help address this conflict. Franchisors want to understand why franchisees are non-compliant and how they can work together to find a solution.
- Termination, renewal, and transfer – Many franchisor-franchisee conflicts arise from these issues. Each is so central to franchise operations that mediation or arbitration by a neutral third party is often the best practice.
- Franchisor neglect – Franchisees may challenge the changes to the franchise system because they will hamper their business operations and goals. Franchisors may also fail to provide adequate support. Mediation may again be a solution.
Conclusion
Ultimately, the success of a franchise system is a mutual effort by franchisors and franchisees to improve franchise management. Operational consistency, training and support, communication, collaboration, and competitive franchise marketing and branding all contribute to maximizing the franchisor-franchisee relationship and achieving everyone’s success goals. Franchisors will know how well they and their franchisees are managing by monitoring their franchise key performance indicators (KPIs). This provides franchisees with benchmarks to track their progress and identify areas where they require additional support. Legal and regulatory compliance is another component of excellent franchise management. Franchise agreements should detail those laws and regulations, including business licenses and consumer protection laws. Integrating technologies with franchisors’ and franchisees’ operations streamlines franchise management, providing both with tools to gain new efficiencies, a competitive advantage, and opportunities for expansion. Contact us to speak with an expert.
Frequently Asked Questions
Q: What is franchise management?
A: Franchise management is both the general management best practices that successful businesses employ and the best practices unique to the franchise model. Franchisors are not only managing their franchise system but are also integrally involved in training and supporting franchisees, enabling them to achieve their sales and entrepreneurial goals.
Q: How can franchisors and franchisees improve franchise management?
A: Building and maintaining a strong franchisor-franchisee relationship is where that improvement starts. They must establish open, honest communication and collaboration to understand each other’s goals and challenges. Franchisees share what they’ve learned “in the field” with their franchisors, who can then use that knowledge to help other franchisees.
Q: What is the role of a unified marketing and brand strategy?
A: Franchisees rely on the strength and broad recognition of franchisors’ brands to penetrate their local markets and attract customers. With a unified marketing strategy and training in that strategy, as well as effective franchise marketing, franchisors can provide franchisees with the support they expect. Franchisees are obligated to use franchisors’ brands and marketing materials as stipulated in the contract agreement. This ensures brand consistency across the entire franchise system, a benefit to all.
Q: What are the best practices for franchisor-franchisee conflict resolution?
A: Franchisors and franchisees will experience conflicts and need to find ways to resolve them. An established conflict resolution policy, fully explained in the franchise agreement and as a topic in the training program, is a proactive approach to conflict resolution. Conflicts may arise over franchisees’ non-compliance with the franchise agreement or disagreements about termination, renewal, and transfer policies. Many disputes can be resolved through open and honest communication, but others may require a neutral third party to mediate or arbitrate a solution.
