Unhappy franchisees vote with their feet

Franchisors who spend large sums of money on franchisee satisfaction surveys can often gauge satisfaction levels in their network using other means at their disposal, such as attendance at meetings, the provision of franchisee reports, and the proportion of franchise resales.

Identifying these three simple measures can quickly give a franchisor an indication of franchisee satisfaction, and may be requested by potential franchisees when undertaking due diligence, or by external suppliers prior to commencing a business relationship with a network.

The measure of attendance at meetings is particularly important when it is applied to the national conferences conducted by a network.

The proportion of franchisees who attend a national conference is a key indicator of franchisee satisfaction. Disengaged, unhappy and unprofitable franchisees will generally not attend a conference, even if it is a requirement of the franchise agreement. If conference participation rates are low, this should signal to a franchisor that there are problems in their network.

At a regional level, if attendances at local meetings are high in one location, but low in another, this can still represent a problem with franchisee satisfaction, but potentially localised to issues specific to that area such as supply problems, market forces, or the support provided by the franchisor’s local representatives.

In either case, franchisees vote with their feet by not attending.

As a benchmark, a consistent participation rate of 80% or above of franchisees attending meetings and conferences is a healthy indicator of satisfaction in the network.

Assuming that attendance at conferences and meetings is mandatory (which it is under most franchise agreements), a participation rate lower than 80% indicates a level of dissatisfaction, and a participation rate lower than 50% indicates a network that has a worrying level of disengagement among its franchisees, some of whom may be struggling to make ends meet.

There is a second component to meeting participation as a measure of network health, and that is the actual engagement of franchisees in the meeting or conference itself.

For example, more than 80% of franchisees attend the national conference, but less than half of these actually show up for any of the sessions. This could indicate that the franchisees don’t value the conference content, but have attended because they have to be there, not because they want to be.

In turn, this brings the relevance of the conference program into question as an opportunity for franchisees to learn how to operate more profitable businesses.

Likewise, franchisees who consistently fail to submit required reports, or who consistenly fail to submit reports on time may also be demonstrating dissatisfaction with the franchise through their behaviour.

Franchisors often make a rod for their own back in this regard by failing to develop streamlined and integrated operational systems which automatically generate reports, and instead often rely on clunky, non-integrated and manual systems which create more work for franchisees but are perceived to deliver little or no value to their business.

Additionally, even if franchisees do make the effort to produce the required reports using an unwieldy system, they will soon stop doing so if they don’t receive any feedback on their reports and come to believe that nobody at franchise head office ever actually looks at them.

So again, the proportion of reports received on time and in full can be an indicator of franchisee satisfaction.

Another measure, and perhaps the most telling of all, is the proportion of existing franchises in a network that are currently up for sale. This is the ‘resale ratio’.

While it is hoped that the single greatest factor that leads people to sell their businesses is the opportunity to harvest a capital gain and to move on to the next challenge, the reality is that businesses are often sold because the operators are burnt out, fed up, or dissatisfied with their profitability (or worse still, financially distressed) and need to move on.

If the resale ratio in a network is low, it can potentially indicate a high level of satisfaction with the business model, the lifestyle it provides, the financial returns, and the support provided by the franchisor.

If, however, the resale ratio is high, it indicates that a large proportion of franchisees are seeking to exit their businesses (for whatever reason), and this may reflect poorly on the franchisor or the viability or execution of their business model.

Resale ratios will differ from one industry to another within franchising, however, if the resale ratio is above 20% (i.e. 20% of the existing outlets in the network are currently up for sale but not including new stores or territories), this should prompt a potential franchisee or supplier to ask a lot more questions of the franchisor.

These three measures – meeting participation rates*, report provision rates, and resale ratios* – can quickly provide an insight in to the health and well-being of a franchise network.

They are indicators that all franchisors should be actively monitoring (and determining internal benchmarks for each), while potential franchisees should inquire about these as part of their due diligence before committing to a franchise.

*The Franchise Advisory Centre offers franchise education workshops on these topics. For more details, see Organise a Franchise Conference, and Managing Franchise Resales.

Jason Gehrke is the director of the Franchise Advisory Centreand has been involved in franchising for 20 years at franchisee, franchisor and advisor level.