A Successful Franchise Model

The marketplace always rewards franchise opportunities demonstrating the following two characteristics: Positive franchisee validation and strong unit-level economics. Since highly profitable franchisees typically do not go to war with the franchisor, strong economics breeds franchisee contentment. Solid unit-level economics appear to be driven by the following 5 key attributes:

1. Unique products and services. The business model has to offer their target market something different, better, and more valuable than other comparable businesses. If not, the market will quickly become inundated with copycat concepts, commoditizing and devaluing the products and services, killing opportunity for all brand stakeholders.
2. Profitability. The model has to consistently exceed the expectations of the franchise candidates most likely to invest in it. Franchisees should be able to retrieve their total investment in the least time span. For more scalable models, the owner should be able to pay themselves an owner income plus offer ownership 25% ROI after their owner’s draw in year 3.
3. Defensibility. The franchisor’s consumer-facing model must have high barriers to entry and be difficult to copy. The market will rapidly attract new entrants, oversaturating and commoditizing the franchisees’ product or service offering, driving down price and eroding margins.
4. Value to the customer. The brand has a clear understanding of how their target customers define their value, and the underlying business model consistently delivers more of that value than they accept in price points.
5. Sustainability. The brand position has proven it is defensible against such competitive threats as disruptive technologies or better execution of a similar model.

If your model doesn’t already possess these 5 characteristics, the brand has potentially fatal flaws that will lead to a weak competitive brand position and an almost-certain growth plateau or plunge the brand headlong into a turnaround scenario. This negative trajectory in turn will lead to fewer viable franchise candidates and poor franchise sales results.

Therefore, it’s incumbent on the brand to embed these 5 key attributes into their model while still in the early stages of growth. Brands that move past this inflection point have presumably figured out their value proposition and developed a system to predictably and consistently deliver value to the marketplace. The numbers clearly show the franchise buying market doesn’t reward brands that seek to prove out their model using a trial-and-error method with franchisees’ money.

Brands that possess these attributes while still in the early or emerging growth stages need only get their story out into the marketplace. A steady stream of potential franchisee investors who want what the franchisor offers is already looking for them.