The Truth About Franchising
Franchise friendly 10 Thousand Feet surveyed more than 550 current franchisees from over 50 franchise systems for its latest report, the Franchisee Satisfaction Study 2008. Of those franchisees contacted, 26 per cent were women, 74 per cent menn, and 58 per cent were aged between 35 and 49. The report found a five-day working week is most common as 39 per cent of respondents manage their business with two days free every week. But almost as many (36 per cent) work an extra day, while 12 per cent are in the business seven days week. Part time franchisees accounted for just 13 per cent, working between one and four days.
Getting Personal
Now there is good news for those of you that think running your own business means 70 hour weeks - just seven per cent work between 60 and 70 hours. But putting in the hard work still matters, and 16 per cent spend between 56 and 60 hours in their business, nine per cent work between 51 and 55 hours, and the largest number from the franchisees surveyed (18 per cent) devote 46 to 50 hours each week to their business needs. More than a third of respondents have been a franchisee in the current system between 13 and 36 months, with 18 per cent notching up less than a year. The more experienced franchisees with more than five years trading in the system account for 28 per cent of those surveyed.
Most of the franchisees are based along the eastern seaboard: 27.2 per cent are in New South Wales, 25.2 per cent of franchisees are based in Queensland and 22.1 per cent of franchisees are in Victoria. Across the board, most franchisees (68 per cent) work in metropolitan regions.
And it's home sweet home for the largest group of franchisees, 24 per cent, who trade from their front room, home office or garden shed. The next largest group of franchisees is mobile – 17 per cent work from their vehicle, closely followed by franchises in stand alone locations – 15 per cent. The office environment is the workplace for 13 per cent, with shopping centres and shopping strips accounting for 12 per cent and 10 per cent respectively.
In the Business
Let's hope you are customer friendly because 60 per cent of franchisees surveyed made it clear their primary role in the business is dealing with customers and 73 per cent of franchisees prefer speaking with customers to dealing behind the scenes. Business administration is the key role for 16 per cent of franchisees, with 10 per cent believing managing staff is their main job, and 10 per cent determining that setting the vision for the business is their primary function.
That line-up is clearly seen in the amount of time franchisees spend working in the business – as opposed to working on strategy and planning. Sixteen per cent say almost all their time is taken up in the business, with 25 per cent spending 80 to 90 per cent of their time, and 28 per cent committing about three quarters of their time.
There are no surprises in terms of territory-based franchises (84 per cent of franchises) or royalty fees charged (88 per cent) on either a flat rate or percentage basis.
A handful of franchisees surveyed report their franchise does not allow them personally to own multiple units – this individual focus doesn't necessarily mean that multiple units are not encouraged; it may be a reflection of a system not set up to make multi-unit owners a success or requiring 12 months trading before taking on extra commitment. Yet while 88 per cent can take on a second or third franchise, just 25 per cent of the franchisees have done so. That said, of single unit owners 37 per cent would like to be a multi-unit owner.
Franchisor Communication
Email is definitely king of communication according to the survey, with 68 per cent of franchisees pleased with their franchisor's email output, whereas only 41 per cent of franchisees find their franchisors communicate well via the phone. While 14 per cent highly rate their franchisor's communication through the intranet, the other end of the scale sees 28 per cent strongly disagree with this. Other areas such as conferences and franchisee meetings get mixed feedback but it seems that franchisors need to do a lot more work to improve their level of communication with franchisees. Thirty per cent strongly disagree that good communication is achieved through site visits and 32 per cent strongly disagree that good communication is achieved through committee meetings.
Staff Concerns
Franchising magazine is always hearing from all quarters how difficult staffing can be, and the franchisees surveyed in this report certainly echo the general consensus. The vast majority of managers, full time, part time and casual staff members have been employed for six months or less. Just five per cent of managers have worked with the franchise for more than 73 months, with just two per cent of full time staff clocking up the same time.
Making Money
Franchises costing less than $100,000 to set up and start operating have proved most popular among the franchisees surveyed. Whatever level of investment you are prepared to commit, and 32 per cent of the franchisees surveyed spent in total between $25,001 and $50,000, it is profit level that will determine your return on investment (ROI) and ultimately your success.In the last 12 months the operating profit and loss after all expenses and before tax was paid was for 38 per cent of franchisees up to $50,000, not in itself a great wealth but for any low investment franchisees, not a bad return.
The dream of a million dollars came true for just one per cent of surveyed franchisees, sadly a smaller number than those who made a loss — six per cent lost up to $50,000 with three per cent saying goodbye to more than that. Of course, making a loss within the first couple of years is not unusual in small business terms.
And when it comes to paying yourself a salary, don't hold your breath. As this report reveals, 52 per cent of franchisees award themselves under $50,000 and 30 per cent found between $50,001 and $100,000. Just five per cent of respondents have an annual salary in excess of $200,000.
Ian Krawitz, head of intelligence at 10 Thousand Feed, says: "We also saw that franchisees who invested a small amount and worked hard were likely to have a good ROI, and those who invested a large amount had the leverage to get a good ROI, with those in the middle less likely to have as high a ROI. From a return perspective many franchisees are also taking a salary and in many instances are running a car and mobile phone under the business."
Of course the franchisor has its own targets for revenue — in many cases the royalty fee increases with turnover. Yet 37 per cent did not give a revenue target in the last 12 months, while 10 per cent, the largest figure, factored in a $50,001 to $100,000 revenue goal, with a gently declining scale to the four per cent who set goals of $800,001 to $1,000,000.
So how did these figures compare with the actual revenue achieved? Well, 23 per cent had revenue of $50,000 or less while seven per cent took $50,001 to $100,000. Above that level, higher revenues were achieved though there is no direct correlation between individual targets and achieved figures this survey. Fifteen per cent of franchisees had achieved revenue of $100,001 to $200,000; 13 per cent managed $200,001 to $400,000; 15 per cent took $400,000 to $800,000, and 14 per cent between $800,000 and $1,500,000. "Something franchisees should also remember is that they are building an asset which can be sold when they choose to get out of the business, and having a top franchise's brand name behind them will often see a business sell on a higher multiple," highlights Krawitz.
"Take Mortgage Choice for example. According to Kelvin Bartholomeusz, Mortgage Choice's national franchise recruitment manager, its franchisees will often sell a similar business for a multiple higher than independents." 29.09.2008
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PO Box 1115,
North Sydney,
NSW 2060
Tel: 02 8080 7544
Fax: 02 8080 7545
