Analyzing Franchise Growth

by Rick Bisio – Franchise Consultant & Author of the Franchise Book –The Educated Franchisee

There are many elements to analyse when selecting the right franchise opportunity. Not only do you need the franchise to be a good fit for you – you also require to work with a franchisor that will be around for a long time.

How can you learn if a franchise system is sound? In the franchise book, The Educated Franchisee we believe in sharing knowledge. A little franchise education can be helpful in this area.

One important measure is the system’s pace of franchise growth.

Too Fast: Rapid franchise growth may seem like a good thing at first but it is possible for a system to grow too fast. It is important to make sure the franchisor has the people and systems in place to thoroughly address your training and on-going support. For example, if a system of 50 franchisees adds 30 additional franchisees in a year, the pace of franchise growth may be too speedy.

Too Slow: If franchise growth is stagnant there could also be a problem. Why isn’t the franchise attracting new people? Perhaps there are problems with the business model – problems that make it difficult for existing franchisees to succeed. When potential franchisees make ‘validation calls’ they may hear about problems and decide to look elsewhere for a business. Or maybe the franchisor doesn’t have the right staff and has to limit franchise development. Either way, a deficiency of new franchisees could be a sign of an unsound franchise organization.

Just Right: Steady franchise growth over time is an indicator of good management and a healthy system. One way to gauge steady franchise growth is to determine the rate at which the franchise grew each year both in absolute and percent terms. To get this data for the past three years you can look in the Franchise Disclosure Document below Item 20 – the List of Outlets. All the information you want concerning franchise growth will be there for you in a clear, facile to understand format.

Rule of Thumb for Most Franchises
As a rule of thumb for medium-sized franchisors, the number of franchisees added each year should be between 10% and 35% of the total number of franchisees. For instance, a company with 100 franchisees ought to own the infrastructure to bring up to 35 new franchisees in the next year.

Rule of Thumb for Large and Small Franchises
This formula doesn’t work for very large or very small companies, however, so when looking at behemoth or boutique franchise systems consider the ratio of operational support personnel compared to new franchisees. A ratio of one support person for every 10-20 new franchisees assures you that new franchisees are likely getting the training and back up they need to succeed.

Talk to Franchisees
But don’t assume! It is critical that you talk to existing franchisees. Find out about the training they received initially and what they receive in terms of on-going support. Do they find the staff to be knowledgeable? Responsive? Does the franchisee feel comfortable calling on them for help? Give careful attention to the information you find out from new franchisees. Your experience will most closely reflect theirs.

Meet the Support Staff
Typically, a serious franchise investigation ends with a visit to the franchisor’s headquarters to get final questions answered and meet the staff face-to-face. Spend extra time with the support staff. Make sure you are comfortable with their experience, skill set, style, and ability to communicate, since you will want to work easily with them and rely on their advice on an on-going basis.

There are many things to think about when researching a franchise business that will meet your needs, but it doesn’t matter how much you like the business if the franchisor isn’t viable. Collect the franchise information you need and be convinced the system you select is growing and has a large number of fulfilled franchisees. Franchise development is a fundamental part of your due diligence. Only a sound franchise opportunity can sustain your long-term growth and success.

The Educated Franchisee is dedicated to franchise education through the sharing of franchise information.

Our objective is –‘To create educated franchise buyers that have clearly defined objectives and are able to recognize the right, or wrong, franchise when they see it. An educated franchise buyer will move into the franchisee role with their expectations properly set and will have a heightened potential for success within the franchise system creating a win/win for all involved.”
To get more franchise information about how to stack the deck in your favor you can –