Franchise Update Magazine Issue III, 2013 | Page 65

By Darrell Johnson

Support Pays Off
Fewer closings, higher royalties

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n average, 43 percent of franchisor G&A—money
and human resources—is spent on functions that
directly support franchisees. These include franchise development, site selection/pre-opening
activities, training, field operations, compliance, marketing,
and legal. The question franchisors and franchisees both
should be asking is how effective these resources are. We
know we get what we measure. Let’s start with what might be
good objectives to achieve. First, the franchisor perspective.
Having a franchisee who opens a unit more quickly will
generate more royalty revenue. If that franchisee also gets
to breakeven cash flow more quickly, they will be a higher
performer and require less downstream support. This is conceptually understood, but probably not fully appreciated. For
franchisees who struggle to get to breakeven, downstream
support can be significantly more costly in terms of actual
franchisor dollars and human resources around field support,
compliance, and legal. And, over the long term, even greater
costs exist with underperformers in terms of perceptions
around those operators—costs not often factored in. These
perceptions affect other franchisees, prospective franchisees,
lenders, and the general public.
This is why franchisors try so hard to find the “right”
prospects for their systems. While it is clearly important to
get the front end of the process right, the impact that all the
other functional activities can have on the outcomes is significant and generally goes unmeasured. If it’s unmeasured,
it’s undervalued and, by extension, suboptimally managed.
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