5 Ways to Protect Your Franchise Investment
Franchisee satisfaction is a primary leading indicator of current system health and a predictor of future performance and long-term system growth. Research shows brands with high franchisee satisfaction drastically outperform brands with low satisfaction on every key performance metric:
- 10 times better unit growth
- 40% higher royalties
- 54% lower turnover
- 2.3 times higher franchisee income
Pretty important data to have in hand if you’re planning to invest in the franchise sector.
If the brand you’re investing in doesn’t provide you with recent, detailed, third-party research on their franchisees’ satisfaction, it could be a red flag. Franchisee satisfaction data gives you business intelligence you need to protect your investment.
Before investing in a franchise:
- Do a pre-investment check-up. Every brand has strengths and weaknesses. Know what you’re getting in BEFORE you invest! Don’t rely on internal data; use a third-party, independent research firm to get an objective view.
- Mitigate risk. As an investor, you understand the importance of in-depth due diligence before making decisions. If you don’t, you’re putting your investment at risk. You haven’t completed your due diligence until you have detailed franchisee satisfaction data to understand what items are top priorities for the management team to address.
- Ensure accountability. Senior management may be telling you all is rosy with their franchisees when, in fact, trouble is brewing. Surveying franchisees to ask for feedback is the only way to know how franchisees are feeling and what senior management is doing to address problems.
- Determine fair market value. Don’t overpay on your next acquisition and/or justify a high valuation on your next sale. When it comes to mergers and acquisitions, regardless of whether you’re representing the buyer or the seller, you need to understand the performance strengths and challenges in the system.
- Assess brand valuation. Protecting the brand is important to investors, franchise resales, and future growth. Franchisee satisfaction research is critical a critical factor in creating best case scenarios for all of these, as well as the best possible scenario if the brand looks to sell in the future.
Some investors leave it up to brand leadership to survey franchisees. Don’t make that mistake! Franchisees satisfaction surveys should be done at least annually to identify performance challenges before they become system-wide issues.
Take the right steps to minimize your risk and protect your investment. Franchise Business Review provides independent assessments of franchisee satisfaction, including detailed reports, actual franchisee feedback, and benchmarking information based on our research with over 1,000 franchise brands.
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