One of the key differences between business format franchising and other methods that can be used to help individuals start businesses, such as licensing or what has become known as ‘business opportunities’, is the existence of the ongoing franchisee–franchisor relationship. An integral part of this relationship is the provision of continuous support and guidance by the franchisor and a continuing commitment from the franchisee to operate under the franchisor’s brand in accordance with the franchise agreement and operations manual.

However, it cannot be assumed that simply because the franchisee has signed such an agreement he will always fulfil his obligations within that agreement. There is, therefore, a clear need for the franchisor to monitor the franchisee’s performance continually.

WHY MONITOR PERFORMANCE?

It’s about protection . . .

• to protect your brand;
• to protect your income;
• to protect your customers;
• to protect other franchisees;
• to protect franchisees from themselves!
• Your brand, and what it stands for, is one of your most important assets. It is effectively your promise to your customers. It tells your customers and potential customers everything about what you stand for and what you do. It is, after all, what has attracted your franchisees to you; it is what they have paid to share. It is important, therefore, that your franchisees are powerful proponents of your brand values and demonstrate complete commitment to them.
• Your income, in common with most franchisors, is likely to be largely or totally dependent upon your franchisees. Whether you receive a management services fee based on sales, or simply rely for your income on mark-up on products that you sell to your franchisee for subsequent resale or for use in the delivery of your service, you will need to satisfy yourself that the franchisee is declaring all their sales upon which they must pay a fee and is purchasing products only from you or other authorised suppliers.
• Your customers are your most valuable asset. One simple definition states that what businesses do is ‘to strive to find and keep profitable customers’. It’s as simple as that and it is difficult, if not impossible, to think of a business format that cannot be reduced to that simple definition. You must ensure, therefore, that your customers and every customer of your brand is your customer, whether served directly by yourself or indirectly by your franchisees – receive the level of service and quality of product commensurate with your brand promise.
• One of the advantages for franchisees of trading under a common brand is that, right from the first day of their business, customers know what it is they do and what they stand for. True, it takes some time for a brand to become so well established, but this is ultimately what every franchisor and franchisee hopes for in the relationship. However, any failure to deliver the brand promise by an individual franchisee can have a detrimental effect on the brand and the customers’ perception of other franchisee businesses.
• The majority of franchisees are totally naive in business matters when they first apply to become a franchisee. Although they may have had experience of the business sector in which they are going to trade they rarely have experience of running a business in that sector. Left to their own devices they are likely to make poor decisions about how to manage the business and will eventually feature among the long list of businesses that fail to get past their second or third year of trading.

PROTECTING YOUR BRAND

Have you got clear brand values? Do your customers think of you in the way you think they think of you? By having clearly defined brand values and brand positioning you make life easy for those customers who wish to trade with you and for you and your franchisees who wish to trade with them.

So what are your brand values? They probably relate to:

• the objective quality of your product or service;
• the value it offers in relation to the price charged and the quality of the offer;
• the ethical stance of your business;
• the position you hold in the market in comparison with your competitors.

Each business will have a different set of brand values but it is important that everyone involved with the business is committed to operating by those values.

When deciding what you will wish to monitor in relation to your brand it is useful to make a list of the many ways in which your brand, as opposed to your business, might be damaged. Certainly if your brand is damaged your business will be damaged, but not all things that will damage your business will be the result of damage to your brand.

So what might damage your brand? Clearly it will depend upon what your brand promise implies:

• For any restaurant or other provider of food products, any instance of poor hygiene or association with food-related illnesses will potentially damage the brand;
• for any franchise that involves the care of potentially vulnerable people, whether they be the young, the old or the sick, any instance where the level of care is seen to be below the level demanded will potentially damage the brand;
• for any franchise where the service is one of cleaning or restoration of a customer’s property, if due care is not taken of that property, or the property is in some way damaged or lost, this will potentially damage the brand;
• for any franchise that provides a product or service to other businesses any failure in that product or service will quickly be communicated around the business community, resulting in potential damage to the brand;
• for a franchise that has to operate under strict rules imposed by statute or professional bodies, any failure on the part of a franchisee to meet compliancy standards will potentially result in damage to the brand;
• for any franchise where the brand values refer to ‘value’, or the relationship between quality and price, if franchisees fail to give value either because of delivering poor quality or over-pricing, it will potentially damage the brand.

Make a list of all the ways that your brand might be damaged and you are well on the way to identifying those activities that you will wish to monitor in relation to your franchisees’ performance.

In the same way, consider what other things, related to your relationship with your franchisees, might damage your business. These might include:

• loss of income resulting from under-declaration of sales, or purchasing not-approved products;
• poor franchisee profitability, credit control or cash flow resulting in the franchisee’s inability to pay management services fees or invoices for product on time;
• the failure of an individual franchisee resulting in damage to the ‘franchise brand’ and loss of income, even if only temporarily, for the franchisor;
• relationships with key suppliers being damaged as a result of franchisees not meeting supply and payment conditions;
• relationships with key customers or national accounts being damaged as a result of poor performance by franchisees.

The above issues may make you begin to wonder why you are considering franchising in the first place if it is fraught with so many potential difficulties. It is fair to say though that most franchisees are, in general, compliant with the franchise agreement in all areas. However, you do need to have monitoring systems in place to spot the odd one who may not be.

PROTECTING YOUR INCOME

Given that many franchisors’ income is dependent upon a proportion of the franchisees’ income, their income stream is at risk if the franchisees under-declare their own income and therefore their liability to pay the franchisor’s proportion. Most franchisors would say that by and large they believe they are victims of only minor instances of under-declaration from a proportion of franchisees. In fact there is a view in franchising circles that ‘if your franchisees are not trying to rip you off they are not entrepreneurial enough!’ While not necessarily subscribing to this view, we feel it does indicate that franchisors almost expect a degree of under-declaration. The key issue though is deciding what is an acceptable level and what is unacceptable. It is arguable that to introduce monitoring systems that would identify even the smallest level of under-declaration would be prohibitively expensive to install and manage. It is necessary, therefore, to provide a balance between protection of your income and the cost of such protection.

While structuring your franchise offer you will have given consideration to these monitoring systems and introduced relevant checks and cross-checks to identify instances of loss of income.

PROTECTING YOUR CUSTOMERS

To ensure that you protect your customers from ‘rogue franchisees’ you will need to have a clear understanding of the principles of customer care that you wish to have applied in your business. You will then need to ensure that all franchisees and, where appropriate, their staff, understand and subscribe to these principles. This could well form a section within your operations manual or may be documented separately as a customer care process.

The two most significant areas of customer care relate, firstly, to the standards of delivery of the product or service and secondly – if those standards aren’t applied, leading to customer complaints – to the recovery process to guarantee a satisfied customer. It is perhaps the second of these that needs most careful consideration.

Within your own business you will have procedures and processes to be followed in the event of customer dissatisfaction. In many cases these may include putting the matter right, to the customer’s satisfaction, even if you believe that their complaint is unjustified. You may well follow the principle that ‘the customer may not always be right but they are always the customer!’ You will have recognised that although it may cost you money it is a small price to pay for having resolved a complaint and retained a satisfied customer.

You will wish your franchisees to follow similar principles but experience suggests that franchisees who do not understand and subscribe to the basic principle of ‘finding and keeping profitable customers’ may be reluctant to spend their ‘hard-earned money’ on an ‘unreasonable customer’. It is important, therefore, for franchisees to understand that giving a refund or replacement product is a small price to pay for keeping a customer while a refund given with bad grace is likely to aggravate the situation further.

It will be important to develop a process whereby adherence to your customer care policy can be monitored.

PROTECTING OTHER FRANCHISEES

We have already discussed how any damage to the brand can potentially affect everyone who trades within that brand. Any franchisee who fails to deliver the brand promise completely is indirectly damaging every other franchisee’s business. Even though they may be in a different territory it is well accepted that bad news travels fast and a long way.

PROTECTING FRANCHISEES FROM THEMSELVES

We have said previously that most franchisees are very naive in business matters when they first establish their business. Initially, they will follow the franchise system to the letter. However, as they become more knowledgeable about the business many will be tempted to introduce variations which they will consider as ‘improvements’ to the system. What they forget is that when they joined the franchise it was because it had a proven business format that was likely to deliver them a successful business. They now believe that they can improve on that system in spite of having only a few months’ experience in comparison to the many years’ experience offered by the franchisor.

It is at this point that they need to be protected from themselves and monitoring processes put in place to identify non-adherence to the system principles.