Is Your Franchise Profitable?
People buy a franchise hoping to make money faster and easier, but often the reverse is true. Instead of making lots of money, they end up paying regular franchise fees whether or not they are profitable. In my opinion, franchises are still good investments, but you must know two things: how to select a franchise and how to make money from it.
Franchises are supposed to be easier because they come with a system. Unfortunately, they often come with only the operational system. If you buy a food service franchisee, for example, it will come with the recipes and directions for setting up your operations. But running a profitable business is more than just making the product. When we talk about a complete business system, it should cover the four basic areas: people, operations, marketing and finance.
So when you select a franchise, pay attention to the completeness of its system. Usually the brands with complete systems may cost more to buy, but you may end up saving a lot of frustration in the end. Be wary of cheap franchises. Are they just providing you a recipe? Pay attention also to their after-sale support team. Do they have one, or are they just going to leave you alone once you buy? Is there a proven model that exists? It is easy to tell people that an idea will sell, but I personally respect franchisors who take the time to build a success model that the franchisees can follow.
Now let’s talk about how to make money. Even if you have bought a complete support system, it is still your responsibility to make sure your business makes money. This sounds obvious, but I meet too many franchisees who blame the franchisors for not having a profitable business. You are the only person in control. If you spend too much time and energy complaining, you won’t have any left to think strategically for your business.
As with any business owner, you must know the basics of a business. How to recruit and build a capable team, how to analyze your finances and make calculated business decisions, how to create cost-effective marketing that generates fast, measurable results, and how to ensure consistency in your operations. Don’t expect your franchisors to think about it for you. If they do, then consider it a bonus.
In terms of making money, pay attention to the five key areas:
1. Generating leads is, of course, a start. And make sure your lead sources are effective. Stop wasting money on bad marketing. Take the guesswork out of marketing by knowing your critical numbers.
2. Aside from generating leads, make sure you improve your conversion rates so that a higher percentage of prospects actually buy.
3. Work on your uniqueness so you stand out from the crowd.
4. Master strategies to increase repeat orders and average sales. Again, marketing is a lot more than getting prospects. Once customers buy, how can you get them to buy more and repeatedly?
5. And most importantly, improve your profitability by focusing on the right merchandise, the right markets, managing your cash flow and making wise management decisions. Without proper attention to your strategies, you may be working hard getting revenue, but losing money in the bottom line.
If you are a franchisee, make sure you have some level of business savvy. In my opinion, owning a franchise does not excuse you from learning about business. You may have the benefit of a well-known brand, but at the end of the day it is still your business and it is in your best interest to make sure it works. Remember, your franchisor has made their money when they sold the franchise to you. Now it is your turn to make your money by making good business decisions.
More about growing a franchise business next week.
Coach Cynthia is a thought leader and owner of an ActionCOACH business coaching franchise in South Jakarta. For a free business health check on your franchise, go to: www.acsj.co.id