(Ambrosio’s note: Welcome to this week’s edition of Fro-Yo Files, an exclusive bonus series for Platinum subscribers of Franchise Chatter. Today’s post is the second of two parts.)
Costs and Profits
Pay careful attention to cost breakdown. How high are royalty and marketing fees? Think about product and materials costs. Many companies, to ensure consistency in both product offerings and presentation, have franchisees purchase not only foodstuffs but also things like cups, spoons, and other merchandise directly from them. However, there’s a danger that such products may be “marked up,” and that the company is making a significant additional profit off its franchisees even as it enjoys large rebates from suppliers. Make sure that costs for inventory and supplies are fair and within the market average.
Ask as many franchisees as possible how long it took to get a return on their investment. Some franchisees may have been very successful very quickly, but if they own multiple locations, there will likely be variance in terms of profit among them. Don’t pay attention only to the best cases, which the company will undoubtedly highlight for you. You should get as large a sampling as possible to grasp the average length of time to get into the black and the average profits, so you know what is reasonable to expect.
Look at stores that have been open for three or more years, and learn whether profits have been steady, or have been suffering a decline. A consistent decline, even if it is small, may be indicative of a less-than-bright future.
Some companies have exhaustive training programs in place, including classes in the “science” of yogurt, while others offer more limited training. But whatever company you choose, you should certainly receive hands-on training at one of their stores. You should be able to understand the daily operation of a store from every point of view, well enough to be able to train managers and employees who will assume a large share of the responsibility for your success.
The company should be able to offer significant guidance in such things as preparation, equipment use and maintenance, store layout, hiring practices, store maintenance, inventory, billing, and marketing. But you should also talk to other franchisees to hear how they have managed these different aspects. See if you can learn from their mistakes, as well as from their best practices.