Over the past few years, the franchise industry has skyrocketed and witnessed incredible growth. You’ll be surprised to know that in 2023, the number of franchise units in the US alone is projected to surpass a whopping 800,000 mark. With the model consistently gaining popularity, no wonder it has emerged as the most powerful expansion model for most businesses. Most big names such as McDonald’s, Domino’s, KFC are the products of the business expansion practice called franchising. Can you believe it?
If you’re running a business and contemplating how to expand it, franchising is a tempting way to accelerate growth. But wait! It isn’t that easy. The journey from a fledgling business to a thriving franchise demands a substantial amount of effort, hard work, and above all, meticulous planning to navigate through the process of franchise development. As the age-old saying goes, “Nobody plans to fail, but many fail to plan.”
Curious to learn about the franchise development lifecycle and how to pass through it? Fret not! In this blog, we’ll provide you with all the information that you need to build a profitable franchise business. Keep reading!
Stages to build thriving franchise business
When it comes to franchising your business, it’s crucial that you don't rush to make a decision as it won’t do any good. Rather go step by step and understand the 7 franchise development stages to their core. This will make it easier for you to ride the waves of building and expanding your franchise empire.
Stage 1: In the beginning: Conduct a feasibility study
Before you embark on a journey to franchise your business, start off by evaluating the answers to questions like: Is your business viable? Is it ready to be franchised? Is franchising right for your business concept? Once you’ve figured out answers to all these questions, consider other critical factors that validate your business’ feasibility
Assess the company’s understanding of the marketplace, business’ costing and pricing systems. Determine the effectiveness of marketing and promotional activities, target customers, and the flow of products or services from the company to the end customer.
Evaluate the quality and USP (unique selling point) of the product/service, market demand, pricing strategy, its features and benefits for end users, distribution channels, and potential profitability.
Competitive advantage feasibility
Analyze unique strengths, capabilities, resources, or attributes that differentiates your business from its competitors in the marketplace.
Management model feasibility
Carefully examine the organizational structure, management model, leadership competence, and decision-making processes of your business.
Determine if your business has all the necessary means such as a strong supply chain and proper documentation to operate effectively in the new market.
Economic and financial feasibility
Look closely at your business’ financial statements, cash flow projections, and capital requirements. Evaluate its ability to navigate through economic downturns or meet financial obligations such as debt payments and operating expenses.
Once you’re done with conducting a thorough analysis, compile a detailed feasibility report highlighting the viability of your business for being franchised. Include a comprehensive assessment on how fit is your business for franchising, accompanied by recommendations to overcome potential pitfalls and challenges that may arise with franchising.
Stage 2: The next step: Conquer the legal maze
To get the process going, be sure to construct a franchise model and complete all the necessary paperwork including:
It serves as a vital document, delineating the terms and conditions governing the relationship between the franchisor and franchisee. It typically covers crucial aspects like fees, intellectual property rights, and operational guidelines.
This is another crucial component of the franchise model which provides franchisees with detailed instructions and procedures to be followed in day-to-day operations. Having this manual ensures the brand's operational consistency across all franchise units.
Create a document listing all the 23 disclosure items such as financial performance, fees associated with the franchise, and their rights and responsibilities. A well-drafted FDD fosters transparency and aids in informed decision-making for potential franchisees.
By meticulously crafting the franchise model and incorporating these key elements, you can establish a rock-solid foundation for your franchise system. This ultimately paves the way for successful partnerships with your franchisees and fosters your business’ long-term growth and profitability.
Stage 3: Have a comprehensive sales strategy
Next, you must draw an impeccable sales strategy that encourages budding entrepreneurs to invest in your business. As a newcomer in the industry, it’s imperative that you determine and set a budget that’s realistic enough to attract, train, and support prospective franchisees. Ideally, the cost of business franchise ranges from $18,500 to $84,500. However, the actual cost depends on the type of business you’re running, its industry, type, and the level of support it requires for expansion.
Picture this: You’re running a small business that currently hasn’t sold its first franchise unit yet. In this case, randomly setting a franchise cost as high as $50,000 makes no sense. Better take into account the revenue your business is generating at the moment and then reach a final number. Even McDonald’s, the food giant with over 38,000 franchise units and approximately $2.7 million average store revenue has a franchise fee of $45,000.
Stage 4: Get the right people on the trail
Now when you know all the nitty gritties of knowing your business’ viability, completing the legal requirements, and building an effective sales strategy, it’s time to move to the next big stage - finding and getting the right franchisees onboard.
While it may be tempting to accept anyone who’s willing to invest in your business, in case things go south, a bad franchisee will cost much more in terms of headaches and time. Therefore, it’s best to have a strategic recruitment process in place as this will help you find the ones who align best with your brand’s value, vision, and financial capabilities.
- Develop an effective marketing and communication strategy. Use your business’ hard numbers such as its revenue potential, recent sales figures, graphs or charts depicting MOM (month on month) or YOY (year on year) growth and profitability, etc., to demonstrate the success your business has attained since inception.
- People love to hear about your brand’s story. Share how it was started and how the journey has been so far. It’s a great way to grab the attention of your prospects and to build trust in your brand.
- Platforms like social media, franchise expos, and industry events act as the catalysts for franchise promotion and lead generation. Leverage these channels to promote your franchise opportunity as it’ll help you reach a wider target audience and boost your brand’s visibility.
Stage 5: Lay strong foundation with franchisee training and support
Develop a hands-on training program for your franchisees to equip them with the knowledge and skills they need to build their business. The training program should be intensive and must cover all the critical business aspects, including operations, marketing, customer service, and brand standards. This will empower your franchisees to operate their franchise unit in an effective and efficient manner.
Being a newbie into the world of franchising, if you’re not sure how to build a franchisee training program, McDonald’s training program can be your go-to guide. The company offers a 12-18 months training program in a restaurant to prepare its franchisees to run a successful business. In addition, the program is self-directed and includes part-time training for 20 hours/week that includes seminars, conferences, and one-on-one training sessions.
Apart from this, make sure you establish a system that provides your franchisees with ongoing support. This will not just enable them to overcome any challenges but will also empower them to upskill themselves with mentorship programs. Having such systems is key to seamless communication and collaboration across all franchise locations.
Stage 6: Ready, Set, Launch!
After completing the training process for your franchisees, it's time for them to embark on their business journey and commence operations. During this crucial phase, make sure that you support your franchisees. Provide them with an optimal launch plan that encompasses essential elements such as site selection, lease negotiations, and store setup. Furthermore, to bolster their success, offer guidance on initial marketing and advertising strategies as this will help you establish a strong brand presence in the new market and attract prospective customers.
Working and collaborating closely with your franchisees during the pre-opening and grand opening stages will ensure a seamless transition from training to full-scale operations. Your active involvement with your franchisees to set up their unit plays an integral role in helping you and your franchisees to refine and optimize the business model, identify potential challenges, and pinpoint areas of improvement. Ultimately, it sets the stage for a successful start to your franchise business in a new location.
Stage 7: Measure the metrics that matter
Last, but certainly not the least, get your eyes on the key performance indicators (KPIs) to track how your business’ franchise units have performed over time. By consistently monitoring and analyzing the quantifiable metrics, you’ll gain valuable insights into your franchise business’ performance and identify areas of improvement. Moreover, you’ll be able to address challenges and make informed business decisions, ensuring that your business remains profitable and competitive in the ever-evolving business landscape.
Summing it up
Now that you know the ins and outs of franchise development, it’s evident that the journey comprises seven distinct stages, each requiring careful planning, execution, and adaptation. From conceptualization and validation to launching and evaluation, the process typically takes between 90 to 120 days. By navigating through each of these stages with due diligence and strategic foresight, you can unlock growth potential, profitability, and long-term success. So are you up to transform your business into a thriving franchise? Get ready to embrace these seven stages of franchise development as a blueprint to franchise success.