How to create a better business plan for your business franchise.
In building a solid franchise strategy, I first recommend “packaging” the business, maybe first in your mind, then of course on paper, with technology, processes and documentation, but first, decide what is this model that the franchisee will be replicating? Many times an entrepreneur handles more aspects in the corporate business than what a franchisee will be tasked to do upon opening which can be a good thing – keeping things simple in franchising has never been proven to be a bad thing.
Franchisees like, appreciate and typically thrive in simple, structured environments with fewer variables left open. Maybe you decide to shorten the menu… possibly decrease the amount of services offered or it could be that the franchisee won’t be operating a production facility, only the retail portion of your business. Regardless, the franchise business plan should define this model clearly and accurately in order to understand the product being sold as the franchise program takes shape.
The next stages of franchise strategic planning should revolve around research. This research should be strategic in nature and focus on the franchise market, not the consumer market. We aren’t interested in the product or service provided to your customer as much as we are the franchise comparison to similar franchise brands. Who offers a similar franchise model based in your industry? What success stories have their been in your industry throughout the franchise market? In most cases, there are examples of good, bad and ugly ways to approach the franchise market, we typically suggest replicating the good and avoiding the other two options.
By coordinating FDD’s from competing brands, interviewing people in the industry, even visiting some competing franchise brand locations if possible, you will be able to formulate your strategic mission and understand the best path to success. Every franchise has a value proposition, it is important that you understand what your brand brings to the market and how you will effectively attract, sign and retain franchisees for your system.
As your franchise concept takes shape, you now should begin to lay the framework for the financials, fees and other relevant numbers to the expansion plan. Franchise fees should be determined by reviewing the costs associated with training, support, sales and marketing related to franchise management. A validated franchise fee should be able to be explained to a buyer and easily understood. You will fail if the impression is given that you picked numbers because you thought they sounded good, you approached the market with confidence and an understanding for what each franchisee gets out of the relationship and why the numbers add up to a strong value proposition.
Royalties, the primary profit center for most franchise systems are absolutely critical to the success or failure of any franchise system, understand what the ongoing percentages mean to both the franchisee and franchisor in your model and confirm that the fee structure lends itself to a profitable and meaningful relationship between both entities. Advertising requirements should encompass national, regional, local and cooperative strategies and each need to be managed delicately in order to provide franchisees with a meaningful benchmark to spend on building the brand in their market.
Because franchising is a business of scale, the magnitude of every decision you make related to your business, your model and your brand is increased significantly, one wrong move up front replicated many times through franchisees could be disastrous for your brand and business.
Then it’s time to begin to understand markets. The franchise business plan should delineate which markets make the most sense for your company. Understand your consumer demographics. Know your territory analytics and have a good plan in place for how to position your franchised units. Territory disputes lead the list in categories for disgruntled franchise relations. Spend the time and make the investment necessary to fully grasp how and where to place your franchisees in order to avoid cannibalization and under utilization of markets.