Franchisee Trends: Wishing and Hoping

• Franchise Trends Wishing and Hoping

Franchise Trends Wishing and Hoping

What franchisees are willing to invest and what they expect to receive in return are often two very different things. Anyone involved in franchisee recruitment will confirm that a significant proportion of potential franchisees have grossly unrealistic expectations as to the investment levels required, what they get for their money and the results that might be achieved. While financial outomes are always at the top of the list of questions, lifestyle concerns are also of considerable interest.

Establishment costs in franchising range widely from less than $20,000 to well above $500,000. And there is significant choice as to what type of business someone might wish to invest in. Over the most recent past though, preferred investment levels appear to have narrowed. There are now fewer people willing to invest in opportunities at either end of the spectrum which leaves the $50,000 to $250,000 band as the most preferred range (although about 20 percent are still interested in entry costs above this).

For the most part, a wide variety of offer and opportunities exist in the preferred range as any scan of one of the major franchise opportunity directories will show. The proportion of food-related franchises in the most popular range is lower than across all investment levels simply because food-related businesses generally have higher establishment costs than non-food businesses on a like-for-like comparison – generally, but not always.

The narrowing of the preferred investment range highlights how early the issue of entry cost is considered. It is, and rightly should be, a question of afford-ability balanced with risk. This almost certainly comes before any consideration of the type of business, potential returns or lifestyle issues.

But do prospects have unrealistic views on the sorts of franchises they might be able to afford? Generally not; the unrealistic view lies in other areas. 

Perhaps the areas in which there are significant differences in expectations are those of fit-out and, potentially, initial stock loading. Here, prospective franchisees tend to have much higher expectations of what they will receive for their investment than is actually the case so it would be prudent to ask why? Anecdotally it seems potential franchisees are simply unaware of the true costs associated with these critical areas. It isn’t too hard to under-stand why.

For most incoming franchisees, the franchise opportunity will be the first time they have been exposed to such issues and have, therefore, no realistic frame of reference. However, it seems that overall franchise candidates are becoming more savvy and now have more business experience than in the past. This could help address this common area of mismatched expectations.

The other key area of expectation mismatch is best described as lifestyle issues. Most commonly, the key lifestyle question relates to work hours: “how much time do I have to spend in the business?” Or perhaps better put from the franchisee’s perspective, “how much time can I spend with the family and still generate an above average income?”

The general rule of thumb is that most franchisors want franchisees to be working in the business on a full time basis because this makes the most of the motivation en-gendered by business ownership (though there are exceptions to this of course). Over the last few years, there have been a number of franchisees which promote and advertise themselves on a lifestyle basis first and then financial returns second – some have been extremely successful and, no doubt, there will be more to come.

There is no doubt that more and more potential franchisees are looking to maximise the time spent with family and franchisors need to make this a key consideration when developing the franchise offer in the first place. Potential franchisees can reduce the chances of mismatched expectations by sharing their expectations with the franchisors and getting these issues clarified in the early stages of the recruitment process – the earlier the better. Otherwise, there could be fallout later.

 

DC Strategy is your business growth specialist. For more information in relation to our quality business analysis, please contact:

David Stafford 
Executive Consultant
david.stafford@dcstrategy.com
03 8615 7207