Quite simply, my philosophy is that it must be a mutually beneficial relationship between the franchisor and the franchisee. Pretty straightforward, but let me explain in a bit more detail.
There are 3 elements that stand out for me:
- The people.
- The finances.
- The franchise model.
Let’s explore them individually.
As in all aspects of business, people do business with people. So, from the Franchisor’s perspective the new Franchisee needs to be someone they can work with. This goes way beyond having the skills or experience to carry out the model or the ability to acquire those skills after training. The Franchisor will be looking for someone who is a ‘good fit’, and who can add something to the existing network by way of skill set and the desire to collaborate with others and enhance what is already there.
Equally the Franchisee will be forming a view of the people he or she meets, the owner and /or operators of the business, the support staff and the existing franchisee network. Are these the kind of people I want to work with for the next 7 years? Are they authentic, not just in the words they say, but in the actions they take? Are they the sort of people who, alongside my own efforts, I can truly trust to help me to become successful?
The partnership works from both sides so both parties need to feel it’s a good fit.
The costs of a franchise essentially come in two parts. Firstly, the upfront investment. I am certain in my own belief that this SHOULD NOT be the source of huge profits for the franchisor. The franchisor should also not be relying on this as a big contributor to its annual operating costs. My view is that it should cover 3 things:
- The recruitment activity concerned when attracting and on-boarding new franchisees.
- The initial training and on-going support of the new franchisee in the all-important first 12 months.
- Some kind of marketing and launch activity to support lead generation so that the franchisee can feel confident in getting things moving quickly.
Other than that, I suppose it is also legitimate for the franchisor to include an element to cover part of the Intellectual Property Rights (IPR) they have created and its ongoing development.
But the point is, it shouldn’t just be a hefty franchise fee because the franchisor needs the money to make a profit!
Secondly, you need to consider the on-going charges commonly known as the Management Services Fee (MSF) or the Royalty. This IS the area where the franchisor should be making a profit. The point being, that the franchisor is only successful if the franchisee is successful. You will see a range of MSFs but the idea is that they are a contribution to the ongoing operational costs of running the business and a contribution to the overall profitability of the franchise.
The key from a financial perspective is that the success of the franchisor and the franchisee must go hand in hand.
The Franchise Model
This final part is perhaps the easiest. The model has to obviously be something the franchisee can see himself doing on a daily basis for the next 5 to 7 years (depending upon the franchise length). It needs to have predictable revenue streams that allow the franchisee to hit his/her desired income whilst at the same time delivering the corresponding MSFs for the franchisor. And finally, the payback on the initial investment needs to be achieved in a reasonable timeframe.
In summary, franchising really should be a mutually rewarding relationship for both the franchisor and franchisee. That’s my philosophy on franchising. That’s what we offer at CMC. And that’s what we spend all our time and efforts on.
If you would like to find out more about our franchise offering or becoming a franchisee, please do get in touch via the form below.