This is a guest blog post by Dan Martin, founder and CEO of IFX Online.
In every recession I’ve experienced during my 28 years in franchising, the business of granting franchises has always increased. At one point, many franchisors were granting more franchises than they could realistically get opened within a reasonable amount of time. Franchises were granted to candidates who obtained financing through their local lender, the SBA or financing backed by the equity in their home.
When the current recession hit in 2008, access to start-up capital went with it. Not only were lender requirements more stringent, but the equity in most people’s homes diminished to virtually nothing. As such, the high-times of selling more franchises during a recession have taken a huge hit.
Franchisors have always maintained that the Prime Directive relates to helping franchisees become successful. Prior to the current recession, that meant focusing the majority of the franchisor’s efforts on helping franchisees increase revenues. The bottom line success was always on the radar, but nowhere near where it is today.
With income from the sale of franchises dramatically lower, franchisors are learning to focus on Gross Revenues of each and every franchisee. However, the franchisors that truly get it are radically focusing on their franchisees’ bottom line net income. Very unusual to take that much interest in the bottom line when the franchisor’s primary source of income relates to royalties calculated on Gross Revenues.
Franchisors have learned an important lesson in recognizing that to be successful these days relates to the bottom line of franchisees. Franchisors have figured out that they can have a) franchisees paying royalties each month up to the time when they can no longer afford to operate without boosting their bottom line; or b) franchisees that are staying in business because they are utilizing strategies their franchisors provide to maximize efficiencies, leverage purchasing power and analyze key performance indicators on a weekly, if not daily, basis.
This form of “Franchise ROI” includes increasing revenues, but is based on the primary focus on the bottom line profitability of each and every franchisee. Along with the bottom line, franchisors are focusing on ways to boost the morale of their franchisees, providing them with the lift they need to pick themselves off the ground and truly follow their franchisor’s advice on ways to increase sales and operate as efficiently and profitably as possible.
Franchisees being approached by franchisors who care about their bottom line almost more than they do about granting new franchises is very unusual, but also very good for franchising. Now that franchisors have acknowledged the shift, they will stay the course. No more going back to the old recession days. Making the most of today’s opportunities is the result of learning a hard lesson and rethinking the definition of success. It’s all in favor of franchisees now. That’s really good!
With over 25 years of experience in the franchise sector, Dan Martin, CFE has served in a number of capacities including franchise management, franchisee and franchisor. In 1996, he founded IFX, a franchise management firm with a solid management and strategy background. Today, IFX is a leading applications provider and strategic consulting firm for organizations and suppliers in the franchise channel. Dan served two years on the International Franchise Association’s Board of Directors, one year on the IFA’s Executive Committee and another year as Chairman of the IFA’s Supplier Forum Advisory Board. As a Certified Franchise Executive (CFE), Dan has extensive knowledge of franchising and is well aware of strategies that virtually any franchise company can use to maximize operations and growth.