Module Three will provide you with a basic understanding of:
- Franchise Support Services: What types of support may be provided; and maximising the benefits of franchise support.
- Site & Territory Selection: General principles of site or territory selection; and exclusive and non-exclusive territories.
- Retail Leasing: Common franchise leasing practices; and negotiating a property lease.
- Franchise Marketing Funds: The purpose of centralised marketing; and the requirement of local area marketing.
One of the benefits of joining a franchise is the support services provided by the franchisor, or franchise head office team.
In addition to national marketing, property and human resources support, franchisees receive a combination of personal remote support and field visits. National and International Franchise Operations Manager with a major national franchise brand, Dan Gallo, discusses franchisee support services and what franchisees can expect in terms of both field visits and remote support, in the video below.
Franchisee Field visits:
- Are generally carried out once a month, however frequency will vary from system to system.
- Cover issues relating to the health of your franchise unit, such as: sales, expenses, cost of goods, cost of employment, net profit and consideration around your net profit as it relates to your financial situation and cost of money. Once financials are covered these will then be related to: operations, marketing, property and core franchise values.
- To prepare for a field visit the franchisee needs to know the expectations of the visit, what to bring to the meeting and what they need to be taking out of the meeting, as well as an open mind and a willingness to discuss and move the business forward.
- A franchisee can take whatever value they like out of field support. If they engage with support staff and work to achieve commonality and drive their business forward the world is their oyster, provided they are willing, open and honest.
- Retail franchises may provide higher levels of field support as royalties are generally higher than those paid in service franchises.
- Remote support may be provided through monitoring the business’ performance through back-of-house functionalities, phone calls and email support, again depending on the franchise.
Site selection can make or break a business. An unsuitable site may lead to under-performance of the business.
Next, hear an interview with Site and Territory Selection professional, Peter Buckingham, who provides an insight into key site selection criteria, which need to be considered before signing lease or territory agreements.
Important elements to consider:
- Even if a franchisor suggests a location, it’s up to you to do your own due diligence to ensure it’s the right location.
- For retail franchises you need to consider aspects such as pedestrian traffic, access, visibility and what sort of rent is charged and whether that suits. Also whether you’re an impulse business or a destination business.
- It’s recommend you look at the Australian Bureau of Statistics (ABS) website, at the section called ‘Census Data’ and then ‘Quick Stats’.
- Quick Stats allows you to enter a postcode, suburb name or local government area and up will come a map of that area and the basic demographics comparing that to the Australian average.
- If you’re in the business to business (B2B) market the ABS also provides a database that allows you to look at the 17 Australian New Zealand Standard Industrial Classification (ANZSIC) categories of businesses. The database provides how many and what types of businesses operate in a particular area, as well as the number of employees.
- Beware of the ‘beer and pizza map’ approach to territory selection. This is where the franchisor (over a beer and a couple of pizzas) draws territories on a big map, based on gut feel rather than logic, other geographical areas or the business opportunity.
- Think before you jump, there are people that can help, and do not be convinced by a real estate agent that says a site is the best thing for you and jump automatically in.
- There are consultants and businesses in demographics that can find information for you.
For franchises that are operated from a fixed location such as a shop or office (rather than a mobile vehicle-based franchise), the lease agreement and conditions are critical to the success of the business.
Lease agreements are binding contracts that can be as extensive, detailed and complicated as a franchise agreement, and involve many terms and conditions which obligate the tenant. Issues relating to retail leasing are outlined in this retail leasing document (PDF 48KB).
Some elements to be aware of in retail leasing:
- For a new (or ‘greenfield’) franchise, a lease should (as a general rule) coincide with the franchise term. In other words, the start and end date of the first term of the franchise should be the same as the start and end date of the term of the lease.
- The term of the lease should also be long enough to allow for the franchisee to recover their business establishment costs.
- The rent may be one of the single greatest costs of running a fixed-location business.
- In addition to the payment of rent, tenants may also be required to contribute toward the landlord’s operating costs of the building or centre in which the tenancy is located. Such operating costs might include cleaning and maintenance of common areas, lifts and elevators, air conditioning, lighting, local authority rates and centre management costs.
- Many leases will provide a tenant with an option to renew, however the terms and conditions associated with the renewal offer – particularly the rent to be charged – may not be as attractive as those in the initial term and potentially cost the business more in a second or subsequent term.
- Depending on the franchise, franchisees of fixed-location businesses will either lease the site from the landlord directly or the franchisor will lease the site and provide arrangements for the franchisee to use the site.
- By understanding the rights and obligations of a lease in advance, a potential franchisee is in a better position to make an informed decision about a franchise business offer.
- It is important to obtain independent advice from qualified and experienced professionals in relation to both the franchise agreement and lease.
Marketing is a critical element in the success of any business. As Asia-Pacific Centre for Franchising Excellence Director Professor Lorelle Frazer explains below, one of the key advantages of joining a franchise is the strength of the franchisor’s brand, and the power of the marketing that supports the brand.
According to the Franchising Australia survey, about 70% of franchise systems will charge a separate marketing fee in addition to the royalties a franchisee will be required to pay.
This is often referred to as the central or national marketing fee, and may range from 1% to 15% of turnover (with an average of 3%) in those systems where royalties are calculated as a percentage of total turnover. This fee is paid into a central marketing fund which then pays for marketing and advertising activities to promote the brand and its goods and services for the benefit of the network as a whole.
Some aspects of marketing funds:
- By pooling franchisee funds for the collective benefit of the network, a franchise system can generate substantial economies of scale that has the potential to lower overall marketing costs than for the same marketing done by an independent small business.
- Franchisees will often receive a minimum quantity of promotional items produced by the marketing fund, such as a quantity of brochures or catalogues, and then may have the option to purchase additional quantities at a much lower cost per item than if the franchisee were to produce the items themselves.
- Under the Franchising Code of Conduct, the marketing fund must be audited unless 75% of the franchisees in Australia agree not to have an audit conducted.
- The Code also requires information about the operation of the marketing fund to be made available as part of the Disclosure Document.
- For both percentage of turnover and fixed dollar amount marketing fee models, a franchisee may also be expected to spend an additional proportion of turnover or dollar amount on Local Area Marketing, or marketing specific to the franchisee’s trading area. The percentage to be spent on local area marketing may range from 1% to 5%.
If you successfully complete the quiz with a score of 85% or higher you will receive a Certificate of Completion.