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FRANCHISEE SATISFACTION AND BUYING A FRANCHISE

by Dr Callum Floyd
 


Introduction

Deciding on the right franchise is not easy. I know I would be anxious and I work with franchise networks every day. There are so many different opportunities and things to consider: your goals, your family, costs, obligations, restrictions, the start up package, potential returns, training and support, required guidance and advice. The list goes on. Importantly, while these are all key factors I think one of the most valuable yet often overlooked areas of enquiry relates to what existing franchisees think. Simply put, are the franchisees already in the franchise system satisfied?

As a prospective purchaser considering franchisee satisfaction levels is important to your decision. You want the confidence that you are making the right decision. Positive levels of franchisee satisfaction give you a powerful signal to you as a prospective franchisee and, furthermore, positive franchisee satisfaction can contribute strongly to the ongoing growth and development of a franchise system – enhancing all franchisees and the franchisor over the long term. Meanwhile, poor satisfaction levels are a warning sign, having potential to send a franchise system into a slippery downward spiral – destroying value for both franchisees and franchisors alike.


What is franchisee satisfaction?

We hear increasingly about customer satisfaction, particularly with development of the internet - and this will only increase. When we look to purchase a product or service we can often go online and find out what others have already experienced. Their feedback is valuable to our decision.

Franchisee satisfaction is a similar concept. Like customer satisfaction, franchisee satisfaction indicates the difference between one’s expectation of performance and the perceived experience of performance. A franchisee will be satisfied, like a really pleased customer, when the experience supersedes the expectations. By contrast, when expectations are not met, franchisee satisfaction will be low.

It is important to know and understand that franchisee satisfaction is, like customer satisfaction, often described as a little bit of an abstract concept. This is really for two reasons. First, this is because satisfaction has many facets. And second, the satisfaction levels indicated by a franchisee will be unique to that individual’s franchisee’s view on the world. Yet like customer satisfaction, franchisee satisfaction is important, and can tell you a lot about the quality and health of the franchise opportunity you are considering.

There are many facets of franchisee satisfaction for you to consider. Broadly you will, of course, be interested to know whether existing franchisees are satisfied overall and whether they would buy the same franchise again given what they now know. But there are also more specific things to consider covering areas like the brand, initial and ongoing training, operations manuals, systems and tools, benchmarking, marketing, franchisor guidance and advice and so on.

When considering satisfaction it is important to recognise that responses of different franchisees will vary depending on how they personally interpret questions and their unique circumstances. Also, an individual franchisee’s response to the same questions can change overtime, given their particular experiences, wants and needs at any particular time. Also, it is important to recognise that progressive franchisors will continue to learn, innovate and further develop their franchise systems over time. As a consequence, the responses from franchisees within the same franchise system can improve overtime. As a prospective franchisee, therefore, you must consider what is happening within the system when interpreting franchisee satisfaction results or feedback. You should discuss this openly with the franchisor. Low levels may not be a fatal sign. Indeed, we have worked to assist many franchisors improve their networks in areas that that drive both franchisee satisfaction and performance.


Why are franchisee satisfaction levels important to you?

Franchisee satisfaction levels are important to you because research shows them to be connected with outcomes and behaviours that matter to both you as a franchisee and the franchisor over the long term. Research indicates franchisee satisfaction levels are linked to:

  1. Existing franchisees recommending the franchise opportunity to others.
  2. Franchisees purchasing the franchise again given what they now know.
  3. Franchisee performance
  4. Franchisee commitment to the organisation
  5. Franchise relationship quality
  6. Franchisee tenure, or their intention to remain in the business
  7. Franchisees attributing their outlets success to their franchisor, rather than their own efforts
  8. Opposition to government legislation aimed at regulating franchising

Additionally, there are other desirable factors logically associated with high levels of franchisee satisfaction. Examples include having your fellow franchisees concentrating on the business rather than complaining to you and the franchisor, following rather than deviating from the franchise system, and contributing more positively to the network and brand. These are all behaviours you would want from fellow franchisees when you join a franchise network.

Clearly, high levels of franchisee satisfaction are not only desirable, they are vital. For example, franchisees failing to recommend the franchise system to others, or worse, actively discouraging others, will have a clear impact on a franchise systems ability to both grow new units and attract quality candidates as franchisees. As a franchisee, this will also impact on your ability resell your franchised business at a future date. This is an important point, because you want your franchise business to be desirable and easy to sell for a good price. After all, this is one of the attractions of buying a franchise in the first place.

Similarly, the consequence of the intention to remain within a franchise system is also really important. Logically, short tenure drives franchise re-sales, and a high proportion of re-sales to total units not only reflects poorly on the system but stunts network growth (as more franchisees are needed) and drains franchisor resources (from effort managing re-sales and training new franchisees). The network can also suffer overall with reduced per unit performance and therefore fewer group marketing funds.


What should you consider?

Research indicates a number of factors that influence franchisee satisfaction levels. These are important for you to consider because some require some self reflection on your part and there are things you practically can and should do during your research and decision-making process.

Relating to you as a potential franchisee, research indicates certain franchisee-personality factors that are important. In particular, extraversion and subjective wellbeing (extent to which you view life in positive terms) have both been associated with increased franchisee satisfaction levels.

Research also indicates that the more information you are exposed to and the greater level of professional advice you seek will also lead to greater satisfaction levels later on. Here you should be demanding detailed disclosure from a franchisor and engaging with a broad range of franchising specialists (e.g., bank, accountant and lawyer) during your research.

The theory here is the greater information you have the more likely you are to not only make a good decision about which franchise opportunity you should buy, but also to set your expectations at the right level. To that end, you should be questioning what you can expect post recruitment, in terms of areas such as initial training and support and assistance with site selection and fit-out, purchasing, financial matters and onsite establishment. You will also want to know about ongoing franchising support and guidance covering areas such as franchisee manuals, ongoing training and, purchasing, financial, local marketing and accounting assistance.

In addition, you also need to think carefully about the system policies and restrictions (e.g., relating to suppliers, territories, renewal operations etc) and the economic model (i.e., initial and ongoing franchise fees) that you will need to adhere and how you might feel about those. The more you know about these areas and think them through the better. You will be less likely to experience a surprise later on that will leave you feeling dissatisfied.


Questions to Ask

Existing franchisees can provide you with one of the richest forms of information when buying a franchise. And there are so many great questions that you can ask. The following provide you with something of a guide and if it were me I would be probing the responses for explanations (i.e., if not, why?):

  1. Does the overall opportunity provided by the franchise meet your original expectations?
  2. How long do you plan to remain with this franchise?
  3. Is the franchisor committed to a mutually rewarding relationship with you?
  4. Do you trust and respect the franchisor?
  5. Do the franchisor staff provide you access to valuable guidance and advice?
  6. Does the franchise provide you with valuable field support?
  7. Does the franchise provide you with valuable marketing tools that you can apply directly in your area?
  8. Are the franchise fees charged fair for the opportunity and value received?
  9. Is the business model well suited to the demands of a changing market?
  10. Do the financial results provided by your franchise compared with your original expectations?
  11. Would you invest in this franchise again?

Ask these questions of a good cross section of franchisees. I would recommend asking at least three or four (of your choice). If it turned out you were getting a wide variety of responses then I would keep asking more until you feel you have a thorough understanding of what franchisees are feeling generally.

When interpreting the information you have gathered it is important to realise that it is not unusual for franchisee responses to vary markedly. You may even find a grumpy franchisee who is the most successful franchisee within the franchise system!

I would strongly suggest talking through your results generally (without mentioning franchisee names for confidentiality reasons) with the franchisor as they will often provide you with a valuable perspective to consider. They may well be, for example, actively addressing problems areas you have identified.


Concluding comments

The concept of franchisee satisfaction has been gaining prominence recently. It is a key aspect all franchisors should monitor and a key factor you should consider when researching a particular franchise opportunity.

As we have identified, you really want to join a franchise system with positive franchisee satisfaction levels. This is important because franchise satisfaction can really contribute to either building (where levels are positive) or burning (where levels are negative) a franchise network.

By contacting existing franchisees and asking good questions you can learn valuable information that will be important to your decision.

 
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Dr Callum Floyd is owner and editor of both Franchise-Chat (www.franchise-chat.com) and Franchise Wire (www.franchisewire.com). He has a Masters and PhD researching franchising, and is Co-Owner of Franchize Consultants (www.franchize.co.nz), New Zealandís leading and award winning franchise development company.

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