A New Franchisee Tipping Point

Most franchisors are currently preparing their plans and budgets for the new year. In recent weeks we’ve also been talking with franchisor executives about their priorities for 2015 and the hot trends as they see it. The results so far have been very interesting. Retention and development of Operations Teams has been a consistent priority. Why is this more important now than in other years?

Why franchise operations is under the spotlight

The answer is linked to several bigger trends. One is the growing number of sophisticated and entrepreneurial franchisees, many operating multiple units, who are looking for higher level coaching and business support. Another is related to a tipping point in franchisee tenure. Over 50% of franchisees are now moving into what we at FRI call the Maturation Stage of their lifecycle where complacency or burnout can become a real threat. These franchisees need to refresh themselves and their businesses or move on. A further disturbing trend is “margin compression” where flattening sales and rising costs are playing havoc with franchisee profitability.

Now is a good time to ask ourselves if our Operations Teams are equipped to address these challenges and what we can do to support them in the most cost effective way. High calibre operations people with the right mix of skills are hard to find and the cost of recruitment is high. So it makes sense to develop and retain your existing team. The skills needed to deliver business value to franchisees are broad. They include negotiation, finance, training, marketing, coaching and, to some extent, industry specific knowledge. Most learning in these areas is ad hoc or gained on the job through trial and error, which is slow and costly. There needs to be a better way to maximise the effectiveness and ROI of Operations Teams.

How to save hundreds of thousands of dollars

One area where franchisors, particularly the larger networks, could literally save hundreds of thousands of dollars is better retention of their operations people. There is solid evidence that the cost of replacing an experienced operations person, including loss of expertise and costs of recruitment, induction and competence building, exceeds 100% of their annual salary. The difficulties and risks of new people establishing credibility with franchisees and fitting into a culture should also not be underestimated. This issue was recently raised in our Operations Think Tank of franchisor executives and triggered some passionate discussions. Remember, a change in a field manager also creates angst for franchisees who probably had a close working relationship with the previous person and now have to educate the new person about their business.

In summary, retention of operations people makes sense from a commercial and cultural perspective. So how do we practice this? Meta-analysis of many HR research studies shows the biggest predictor of tenure is not pay. This is a misconception. Job dissatisfaction and a perceived lack of commitment to a person’s professional development by their boss or company is twice as likely to predict whether they will leave. So if you want to retain your good people, provide useful support for them and invest in their professional development. I personally think this is one of the biggest opportunities for franchise networks wanting to face 2015 with a confident, growth mindset.

Meanwhile a question all of us could reflect on is, “What am I doing to support and develop the people under my care?”

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