Maintaining a business partnership is not a very easy task for a franchisee. When dealing with a franchisor, it changes the dynamic in this relationship. Although you are a business owner, you do not have the freedom to follow your plans. As part of a franchise network, you must follow various set processes and work methods.
In most instances, these partnerships work seamlessly, but this aspect may give rise to friction between the franchisor and the franchisee. A proven and well-established franchisor network will provide franchisees with benefits that an independent startup venture cannot (such as experience and brand recognition). A franchise brings fresh motivation and a local presence to the table, which helps the company boost its brand awareness.
This business relationship is supposed to be mutually beneficial, and as mentioned earlier, it often works quite well for both parties involved. However, like any other partnership, tensions can arise between the franchisor and the franchisee as well. In most cases, the conflict arises from financial aspects. Factors in play include the initial upfront fees or other ongoing fees and commissions the franchisee pays the franchisor.
Franchises collect an initial fee from franchisees, and the latter benefit from the franchisor’s licensing and trademark rights and an established brand. They also get assistance and support to set up their business from the franchisor.
Site searches, one-time costs, and training are all included in the initial fee. The franchisor provides the franchisee with the expertise required to stabilise their new venture. In a well-established franchise business, the owner will have standardised processes that they develop into franchise opportunities.
The upfront fees that the franchisor gets are used to help the franchise generate income, and it rewards the franchisor for developing a successful business model. Whenever there are any disagreements due to these initial fees, it is because:
These things can sometimes cause disagreements or tensions between the franchisee and the franchisor, uncovering weaknesses in their business relationship. When the franchisee perceives that the person they are dealing with is falling short of their expectations, they need to voice their concerns. Corporate service or area reps are there to help them. As a franchisee, you need to be persistent and follow up on your request if the franchisor doesn’t respond within a reasonable amount of time. In most cases, you will work through these initial hurdles and establish a stronger relationship with the franchisor.
The ongoing fees that franchisees pay to the franchisor are the other portion of the funds. All expenses will vary from one franchisor to the next and include royalties, technology fees, and marketing fees. Each of these is based on the franchisees’ overall monthly sales from the franchisee’s viewpoint. Every penny that goes to the franchisor is one less in their pocket.
On an ongoing basis, every franchise wants to see value in the fees they pay the franchisor. The latter has to provide consistent upgrades, timely tech support for any POS systems etc. In addition, the franchise also wants to see value from the franchisor’s advertising and marketing efforts. It means that they want to see more customers, translating to more profits.
Sometimes, the franchisee does not gain financially from the marketing campaigns launched by the franchisor. This contributes to the frustration that arises if a particular promotion doesn’t provide value to a franchisee, giving rise to some conflict between the franchisor and franchisee. The best way to resolve these issues is to discuss these pain points with the franchisor and find the best way to continue the business partnership.
If you want any more information on working smarter, contact the experts at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact form, and one of our experts will contact you as soon as possible to answer your questions.
Thanks for reading,
The Franchise Institute Team
1300 855 435