PASSION AND PROFITABILITY

Franchising is an economically interdependent partnership and franchisee profitability must be the key concern for franchisors.

FCA chair Bruce Billson offers insights into what makes franchising work.

As a business sector, franchise networks thrive thanks to the individual efforts of hard-working franchisees – a core belief of the Franchise Council of Australia which represents the nation’s franchising industry. Sadly, in recent months this message has been obscured in mainstream media coverage of this economically vital sector.

Setting up franchisees with systems and tools to be sustainably profitable, happy,

competitive in a dynamic economy, well-supported and successful are also the primary goals of any good franchisor running a full-service model.

All in all, the proposition is simple: the franchisee is the “prime customer” and therefore constitutes the most important business relationship for the wise franchisor.

Success in a franchise relationship involves both parties, with particular weight on the shoulders of the franchisor for “enabling” the enterprise and leading the collaboration, as well as mentoring the franchisee. For someone to take on a franchise they need to do due diligence, draw on their business acumen, trust and be optimistic. After all, they are often investing their life savings in a franchisor to draw on the know-how, integrity and strength of the franchise network.

Australia has nearly 80,000 franchised business units, and no-one should be more invested in each and every franchisee’s profitability and success than their franchisor. At base level, the commercial reality is that a franchisor needs its franchisees to be profitable. Franchising is an economically interdependent partnership: the franchisor provides the right to market and provide certain goods or services, and to use the business name for a fixed period of time, while the franchisee provides the financial capital and human resources to establish and run the individual business unit.

NOT PROHIBITIVE

Franchisors earn income from franchisees in two main ways. Firstly, there is the upfront fee paid by franchisees when they buy into the system. This is designed to cover the cost of recruitment, training and support provided by the franchisor. Good franchising practice dictates that these fees are not charged at a rate prohibitive to attracting good franchisees into the network, but to support suitable franchisees in establishing a profitable business that will deliver mutual benefits.

Secondly, a franchisor usually charges ongoing royalty fees, which may be levied as a percentage of the franchisee’s turnover, which may vary as trading conditions change, or as a flat monthly fee. These royalties are designed to pay for the franchisee’s use of the franchisor’s intellectual property and business systems, and are a franchisor’s primary revenue stream.

It is important to note that no two franchise systems are likely to have the same royalty or fee structure, but in common franchisee profitability is the key to the franchisor’s ability to generate their own ongoing revenue stream.

While the recent media reports focused on failed franchisees, they involved brands that have many successful franchisees. The powerful lesson here is that franchisee profitability must be top priority for franchisors.

BENEFIT NOBODY

Unfortunately, the reputational damage that can be caused by persistent, negative media coverage of unhappy and unprofitable former franchisees is huge and can impact the prospects of successful franchisees across the network. There can be a drop in revenue at individual franchise businesses, and it can make it difficult for a franchisee to obtain the best sale price for their businesses as part of a planned exit strategy. Such outcomes benefit neither the franchisor or franchisees in the network.

Conversely, successful and profitable franchisees are the best brand advocates a franchisor can have. And there are many, many thousands of everyday Australians who, with the support and systems of a franchisor, turn a franchise unit into a successful business.

A good example is Kwik Kopy franchisee Dan McKenzie, who is finding success following in the footsteps of his father and uncle who also owned franchises with the brand, while his wife Theresa is running a Jim’s Pet Grooming franchise.

“When we first bought the Kwik Kopy Miller Street franchise, it was ranked last out of 100 centres. Within four years we have been able to turn the business around,” says Dan.

AWARD WIN

In that time he has almost quadrupled sales for his business and been named the Kwik Kopy Franchise of the Year. He has just received recognition from the Franchise Council of Australia as a New South Wales/ACT winner in this year’s franchising awards.

“Kwik Kopy Miller Street continues to go from strength to strength. In just a few years it has managed to turn a struggling business into a top performer,” says Kwik Kopy Australia MD David Bell. “But it’s not just an effective business model that makes Kwik Kopy Miller Street a standout performer. Its community spirit sees it deliver first-class customer service, build an empowered team, share knowledge and contribute to its franchising network at all times.”

Similarly, 2018 NSW/ACT multi-unit franchisee winners in the latest New South Wales/ACT awards Jim Kelly and Crystal Petzer of Hire a Hubby

Mona Vale and Narrabeen have carved successful careers from franchising for more than 20 years. They first had a 10-plus-year stint as convenience store franchisees before, after considerable research, buying their first Hire a Hubby franchise nine years ago.

“We’re passionate about the brand. The franchisor has a really good system and we follow it to a tee. Maybe that’s our secret – we take that system and we work it,” says Crystal.

There are many thousands of similar stories to be told about franchise success, and they reflect the larger picture of franchising experiences in Australia.

Putting in place systems and processes to ensure franchisees are as profitable and passionate as these award-winners should be at the heart of every good franchisor’s business. It simply makes good business sense for franchisees and franchisors alike for this to be the case.