We’ve heard it a thousand times, “Location, location, location.”
Finding the right real estate site is critical to the initial success of your corporate store – and thus a key component of your business franchise. A location’s visibility, convenience and accessibility, and the demographics of the community can literally make or break the unit. You know this to be true, and your franchisee is about to find out. And so it’s wise to ask yourself: are you providing your franchisees with the real estate support they need to succeed?
Franchise Update claims amongst franchise unit locations there is up to a 30 percent error factor in visibility, convenience, tenant mix, economics and lease terms – and that factor is the single largest contributor to a franchisor’s annual turnover rate. Since your success relies on that of your franchisees, the more you can do to reduce that error factor, the better your long-term bottom line.
Today, the status quo is for the franchisee to bear the burden of real estate decisions, from site selection to lease negotiation to legal review. The franchise disclosure document (FDD) and franchise agreement frees franchisors of responsibility in the event poor site selection or bad lease terms contribute to a franchisee’s failure. It’s a move that’s intended to protect oneself as the franchisor…but many experts are suggesting it’s actually a short-sighted, misguided approach that leaves too much at risk. Franchisees end up in the counsel of untrained leasing agents with little knowledge of or vested interest in the success of the franchise operation.
So how do give your franchisees the support they need?
There are two options: develop an in-house real estate department, or outsource the support to a real estate provider. The benefits of an in-house department boil down to control and knowledge of your brand. Having a team who understands the intricacies of your particular business – what’s worked and what hasn’t for past or existing units – can be quite valuable.
Of course, an in-house team can also be quite expensive. A recent article in Franchising World claims a “basic” real estate department costs between $325,000 – $515,000 a year. Outsourcing the expertise can significantly reduce those costs, and move them from fixed costs into variable costs for each new location. Outsourcing also offers scalability: the flexibility to scale the size of your team throughout the year to the flow of the franchise sales and development cycle.
Either way you go, it pays to beef up your support systems. Prospective franchisee owners in the know are now looking for franchisors who go above and beyond in mentoring their growth and actually act as partners from the moment they’ve signed the final contracts. By positioning yourself as one of these franchisors, you’re not only getting a leg up on the competition, you are appealing to savvier franchisee owners, and increasing the likelihood that everyone will succeed.
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