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Business partnering can be difficult. When another person (or a franchisor) is part of your business, it changes things. Instead of being single and free to follow your own plan, a franchisee is in a long-term relationship with the franchisor, and it can cause friction.
Usually, these are good partnerships. A well-established and proven franchisor model provides something to franchisees that an independent startup does not have, yet (think brand awareness and experience). And a franchisee supplies a local presence and fresh motivation that a franchisor wants to help build the brand. It’s supposed to be a win-win. And it often works well.
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Still, there are tensions in any partnership, and franchisor-franchisee relationships are no different. Most often, conflict comes down to money. And franchising money comes into play through (1) initial upfront fees and (2) ongoing fees.
Tensions Surrounding the Initial Fees
The franchisor collects an initial fee. For this fee, the franchisee benefits from an established brand, licensing and trademark rights, and the assistance provided to get started. Training, site searches, and other one-time costs are included in this fee.
The franchisor, in turn, provides the expertise that a new franchisee needs. In any reputable franchise organization, that expertise was hard-earned, standardized, and then developed into franchise opportunities. The franchisor gets the upfront funds that help get the franchisee generating income and helps reward the franchisor for having developed a successful model.
When friction occurs due to start-up fees, it is most likely caused by a franchisor that doesn’t follow through on that end. For example, a franchisor might not provide the support that a franchisee needs. Someone provides initial training, but then the franchisee cannot contact the corporate office when there’s a question. Limited regional support might be a challenge for a lone franchisee, or territory might not be well-defended by the franchisor. No matter the cause, the initial fee can cause early tension between a franchisor and franchisee, uncovering early weaknesses in the relationship.
When a franchisee perceives that a franchisor is falling short of expectations, it is important to voice the concerns. Area reps and corporate service are there to help. With a plea for more and a persistent effort, franchisees can usually work through most initial service assistance needs with a franchisor.
Tensions Surrounding Ongoing Fees
The second chunk of funds that franchisees pay is the collection of ongoing fees. As with expenses, these vary by franchisor and include things like marketing funds, royalties, and technology fees. Each one of these is based on the gross monthly sales of the new franchisee. Through these fees, the franchisor collects ongoing monies based on the franchisees’ sales.
For the franchisees, every dollar that goes to the franchisor is one less dollar in their pocket. Franchisees, on an ongoing basis, want to see value in the cost of the fees they pay. The franchisor is supposed to provide consistent tech support for POS systems, including timely upgrades.
In addition, the franchisee wants to benefit from the franchisor’s marketing efforts in a meaningful way (as in more customers and more profit). Sometimes, the franchisee doesn’t receive any of the financial gains from a marketing campaign which contributes to frustration. If a promotion could detract from a franchisee's business, the potential for a franchisor-franchisee conflict is significant. Some franchisors don't provide significant marketing to support growth, no matter how flawed it might be.
As a business owner, it is extremely frustrating when a franchisor seems to frivolously use our funds. And those frustrations should be voiced. Franchisors need each and every franchisee to succeed, too, so they normally respond with real concern when something doesn’t seem to be helping a territory grow. A franchisor should be able to provide statistics on how their marketing efforts fare, and and work with franchisees to design relevant and successful programs.
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Whether it is the initial fee or differing opinions on the use of ongoing fees, money is usually the thing that usually creates friction between franchisors and franchisees. It might not be possible to eliminate all disagreements, but having a solid line of communication with properly set expectations can help. A solid franchisor with a proven success record will provide good guidance and support to franchisees along with effective marketing efforts. A franchisee wants those dollars to the franchisors to create a winning partnership.
Anne Daniells is a co-owner of Enterprising Solutions, a professional services firm specializing in corporate communication and financial improvement for businesses where she shares decades of corporate and entrepreneurial experience—including franchise ownership—in her writings on business culture. She has authored hundreds of articles for publications including AllBusiness.com, TweakYourBiz.com, and MSN.com. Reach out via her website for more on where corporate culture, communication, and human architecture collide.