Operations
A franchisor must have in place effective
systems and a sound structure to support the
operations of its franchisees. Essential
elements include a franchisee support
program; an operations manual; a training
program; control systems and forms; a
supervisory program; and an appropriate
corporate organization.
The support program, a package of services
that the franchisee needs to be
successful
These services should
reflect those characteristics of the
business important to its success. In
performing these services, the franchisor
must consider its own limitations and
capabilities, the cost involved in
performing these services, and the type of
support required--consultative, instructive,
or directive.
An operations manual that documents all
the major functions involved in opening
and operating a franchise
The operations manual aids in
maintaining product and service standards as
well as overall uniformity; helps in
minimizing "calls to the home office"; forms
the basis of a systematic approach to
training; and becomes a source of reference
for the franchisee as well as a tool for
evaluating supervisors.
A training program
The franchisee-training program not only
teaches skills, knowledge, and management
know-how, but also can help in correcting
attitudes, creating a desire and confidence
in the franchisee to succeed, teaching
entrepreneurial skills, developing a
willingness to cooperate for mutual benefits
and advantages, and creating enthusiasm for
the franchise program. One of the training
program's purposes, therefore, is to create
in the franchisee a strong allegiance to the
company and lay the groundwork for a
successful future relationship. Never again
in the franchise relationship will the
franchisor have the franchisee captive like
it does in the training program for the
1-2-3-4 weeks or how ever long the training
program lasts. During this time, the
franchisor has a chance to mold the
franchisee. As a result, the training
program must be highly structured and
appropriately systematized.
Control systems, procedures, and
forms
These are needed to ensure
standardization and uniformity of
operations, minimize problems, supply
informational needs, monitor the
franchisee's performance, monitor the
franchisee's adherence to standards, and
ensure the company's ability to audit the
franchise operations.
Forms that are required typically relate to
sales, cost of goods, labor costs,
advertising expenditures and other major
expenses. Such forms would include the cash
register form, activity form, a
weekly/monthly recap, the sales report,
customer analysis form, advertising analysis
form, operations analysis form, and a report
on the major expense items.
An effective supervisory program
Since the supervisor must continually
guide and assist the franchisee, the
supervisor is possibly the most important
person in the franchisor/franchisee
relationship. In most cases, the supervisor
has been a company store manager and
understands the business intimately;
therefore, when he talks with the
franchisee, he speaks at his level.
As
a representative of the franchisor, he
ensures that the standards are maintained
and detects and resolves problems before
they become serious. He also strives to
upgrade the abilities of the franchisee and
his employees and often introduces new
products, services, and promotional
programs.
Organizational structure
The franchisor is responsible for
developing and maintaining a support
organization, which satisfies the needs of
each franchisee and operates efficiently and
effectively.
To insure the
effectiveness of the support organization,
the franchisor first should prepare a clear
organizational chart that shows the
interdependence of each department. Next,
the franchisor should identify the required
jobs, the staff necessary to perform those
jobs, and the criteria for selecting and
hiring qualified people. During this
analysis, the franchisor should evaluate the
staff members' abilities against the
established criteria.
Communications
Effective communication through carefully
planned systems of information sharing,
recognition, and reporting is critical for
the continuing growth and development of the
franchised business. The following methods
of communication have been successfully used
in franchise systems throughout the United
States.
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Telephone contact is one of the most
effective and practical modes of
communication.
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Mail, electronic communication, satellite
systems, CD-ROM, and video cassettes are
common methods of providing and explaining
instructions, supplying advertising and
promotional materials, reporting sales
figures and changes in personnel, and
handling other important business matters.
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Electronic newsletters are effective in
explaining various activities within the
franchising company, recognizing the top
sales zones, expressing the opinions of
franchisor management, announcing new
territories and franchisees, and
presenting other information of a positive
and helpful nature.
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Personal visits are usually made by the
field supervisor, general manager, and
vice president of personnel, franchising
director, training director, and so forth.
The personal visit is a good public
relations tool that can be used to
encourage and uplift the spirits of
franchisees and their employees.
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Franchisee group meetings, one of the
greatest forms of support for weaker
franchisees, can encourage the sharing of
experiences, techniques, and advice by the
stronger, more successful franchisees
within the network. Peer group influence
is always a strong force on people's
attitudes and behaviors.
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Franchisor sponsored meetings, such as
regional meetings, semiannual meetings,
and conventions, can be used by a
franchisor to bring its franchisees
together on a regular basis to share
information and provide training.
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Franchisee advisory group, (and/or one or
more committees) on purchasing, customer
service, advertising, retraining, etc.
Finance
The franchisor needs to establish an
appropriate structure of fees, including
advertising assessments, that the franchisee
will be required to pay the franchisor. It
also must have a thorough understanding of
the investment that a typical franchisee
will need to make to become a franchisee.
Such information must be developed not only
for purposes of the disclosures that the
franchisor will be required to furnish to
prospective franchisees, but also for
purposes of understanding the level and type
of financing that franchisees may need.
Finally, the franchisor needs to understand
the financial results that the franchisor
and its franchisees can expect to achieve.
Franchise fees, royalties, and advertising
and/or software assessments
Determining
a franchise fee is more an art than a
science. However, the following
considerations can influence the amount of
the fee:
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The nature of the services offered by the
franchisor
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The extent of these services
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The cost of the services to the franchisor
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The need for the franchising company to
cover its overhead and show a profit
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The ability of the franchisee to pay
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The amount the competition charges
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The value of the trademark
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The attractiveness of the franchise, and
market space
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The term of the agreement
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Other assessments being charged
These and other relevant factors all need
to be weighed in establishing the initial
franchise fee. Companies beginning to
franchise sometimes decide to begin offering
franchises for a fee at the lower end of the
range they are considering, in order to make
the franchise opportunity more appealing to
early franchisees. Franchisors are more
hesitant to reduce the franchise fees
charged to later purchasers.
Financial projections for both the
franchisee and franchisor (for internal use
only)
For the franchisee, a detailed
breakdown of his investment requirements,
working capital needs, operating income and
expenses, and anticipated return on
investment should be developed. Unless the
franchisor makes what is referred to as an
"earnings claim" (which includes any
statement of actual or projected sales,
costs or profits), these projections of
operating income and expenses and return on
investment cannot be provided to the
franchisee before the franchise is sold.
For the franchisor, a financial plan
projecting four years of anticipated growth
in number of operating units, franchise
fees, royalty income, expenses, profits, and
organizational requirements and costs must
be created. This plan is needed as an
operating budget to know initial funding and
cash flow requirements. The plan is also an
aid for obtaining outside capital and
investment.
Sales and Marketing
Marketing will be key both to the
success of the franchise program and to the
success of the franchisee's business.
Franchisors must address a number of
marketing issues.
Establishing market direction
An important decision that a
franchisor must make at an early stage is
where it will expand through franchising.
Franchisors cluster locations within
established markets because these markets
have been successful. Adding franchised
locations within an established market will
generate additional funds for advertising in
the market, thereby enhancing the market
share, as well as helping to seal out
competition.
Recruitment of franchisees
A start-up franchisor, in order to use its
time, resources and money most
appropriately, must determine the profile of
its likely franchisee, particularly
documenting the skills and talents required.
The characteristics of the franchise
business dictate the kind of franchisee
needed.
After the franchisor has established the
profile, it must establish a budget and
goals for recruiting franchisees, in order
to determine the most effective place to use
its advertising dollars. Should the
franchisor promote in a business magazine?
If so, which one or ones? Should it use
newspapers? Would direct mail, Internet web
site portals, trade shows, seminars, public
relations, or broadcast media prove
effective?