Franchisee satisfaction is a key performance benchmark for forecasting the rate of your system development. If your "troops" aren't promoting you, it doesn't matter how compelling and profitable your program is. I'll never forget the children's franchise with a great financial success story. Even though their business model and ROI were terrific, their recruiting efforts were flopping. Lack of corporate support sparked huge issues, and owner validation was near nonexistent.
What is the relationship between franchisee satisfaction and the growth rate of new franchisees entering franchise organizations? Franchise sales execs know there's a direct connection, but is there any documentation to prove this? To answer this question, I asked Eric Stites, president of Franchise Business Review (FBR), to conduct research to find out. FBR is a franchise marketing company specializing in independent franchisee satisfaction reports and ratings.
The study, based on data from 130 franchise companies, revealed that companies with high levels of franchisee satisfaction grew at an annual rate six times greater than that of companies with low satisfaction levels. Small franchisors (especially start-ups) were excluded from this survey since they would skew the results because of much higher year-over-year growth as a percentage, and because they had less of a track record for measuring franchisee satisfaction.
The 130 companies in the study had a minimum of 50 franchise units. Systems ranged in size from 50 to 3,915 units, with a median size of 165 units. Median annual growth for these companies over a three-year period was 12.5 percent. The sample was split into four quartiles based on franchisee satisfaction, as measured by FBR in this franchisee satisfaction survey. The average rate of survey participation by franchisees was 58 percent. The research clearly documents that higher satisfaction produces greater franchise growth.
The study also helps answer the frequent question, Do the fastest-growing franchise companies experience lower franchisee satisfaction? There's an industry perception that rapid growth often creates disgruntled franchisees because of eroding support and services. In this FBR study, there wasn't any conclusive evidence to support this. In fact, the 50 fastest-growing companies of the 130 surveyed had a median franchisee satisfaction rating slightly higher (3 percent) than the rest. So clearly, there are many companies growing quickly and still maintaining high satisfaction levels with their franchise owners.
Franchise dissatisfaction is not only caused by support or management concerns. Often it's the result of awarding franchises to the wrong people. If you don't know your ideal franchisee profile, you better find out fast! For starters, you can strengthen your system's growth opportunities by identifying the winning characteristics of the best 20 percent in your program. Also identify the behaviors and experience levels of your bottom 20 percent, those owners who "just don't get it" and fail to improve even with continual support and assistance. Profiling the bottom 20 percent of your franchisees accomplishes two objectives: 1) it alerts you to variations in behavioral styles that are contrary to your success model, and 2) it more clearly distinguishes the desired characteristics unique to your top performers.
More franchisors now use professional behavioral surveys as part of their franchisee selection process. They have proven a smart investment for many, especially considering the size of the payoffs and risks at stake. They certainly helped with my franchise recruitment experiences.
Franchisors that invest in their current franchisees' health and satisfaction are widening the gap from competitors no longer able to capitalize on the overflow of franchise prospects and the easy loans of the 2000s. The moment the 2010 candidate begins their validation calls and visits, the future of their decision to pursue your franchise lies heavily in the hands and satisfaction of your franchisees. Will most of your brand representatives engage and excite your prospect to continue their investigation--or scare them away with frustrations they could also encounter? Invest in your franchisees and enjoy the payoffs. They can handsomely reward you by validating well with your prospects and actively referring more new franchise candidates to you.
This article is an excerpt from Grow to Greatness: How to Build a World-Class Franchise System Faster by Steve Olson. For ordering information, go to www.franchiseupdate.com/gtg.
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