Franchise Fees that are Too Low & 2 Other Mistakes that Almost All Bad Franchisors Make

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I used to believe that franchisees and other business owners failed because they were under-capitalized, but I believe that's a myth.

Someone somewhere many years ago said that the main reason for business failure was under-capitalization and everyone picked up on that and it has continued to this day.

I don't believe it, anymore.

And with US disclosure laws, as well as the opportunity to speak frankly with active franchisees prior to investing in any franchise, there's plenty of opportunity for franchise prospects to learn how much capital they will actually need.

Of course, many franchisees do not do that, and that's generally an indicator that there are other worthwhile things they also won't do.

Here is what I believe to be the major issues.

  • First, many franchisors select the wrong franchisees, and

  • Second, many franchisors are incompetent at training and coaching franchisees.

  • Third, many franchise fees are too low.

All of those problems could be fixed and I'm happy to know franchisors who have addressed those issues and who have enjoyed more success as a result.

Most franchisors appear to be uninterested in matching a franchisee's skills and motivations to the requirements of the franchise business. Why? I don't know.

I guess it's another step in the recruitment process and franchisors don't like delaying that process.

Unfortunately their emphasis is on "sell now" and not "succeed later". I tell every prospect I speak to -- several thousand annually -- to run from a franchisor that does not formally address how their personality/skills/motivations complement the requirements of the franchisee's operation.

Others have mentioned the 35k franchise fee & it's not enough money to pay for the support and training needed.

People tend to think that franchisors use the profit from franchise fees to buy vacation homes, send kids to college, and drive expensive automobiles -- but that's not my experience (and I've worked with many dozens of franchisors in the last 30+ years).

Most franchisors lose money on the 35k franchise fee . . . and then they don't have the money to invest in the proper training and development of the franchisee.

Even smart people need more than a week or two to learn how to operate a franchise business, but franchisors don't see it that way -- takes too long and costs too much.

Unfortunately franchisors have the wrong focus. Making a sale doesn't guarantee making a profit . . .

Only making the right sale and then properly training and developing the franchisee over time will indeed generate long-term profits.

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1 Comment

Underestimating the franchisor's cost to recruit, train and start-up is very common.

Especially with start-up franchisors who buy the services of franchise attorney or a non-lawyer franchise disclosure document drafter and have little to no budget for franchising launch.

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This page contains a single entry by Dr. John Hayes published on March 2, 2015 1:35 PM.

Franchisors Need to Sell More Franchises was the previous entry in this blog.

How to Lead & Have More People Like You is the next entry in this blog.

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