Buying a franchise - Part 1 - Franchisee Churn Posted by Matthew

 
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Buying a franchise - Part 1 - Franchisee Churn

Posted by Matthew in Franchise on 09.05.2009 9:28:46 am | 471 views

When buying a franchise there are many points of research that need to be completed before going ahead with your franchise purchase. In this series of articles we are going to look at many singular points which should be carefully looked into to determine if the franchise you are interested in buying is the right franchise for you and likely to be a profitable opportunity.

Franchisee Churn / Turnover

Franchisee churn simply refers to the amount of people who have left the system after making their purchase.  A high churn rate implies that either the system does not work or the management team are impossible to deal with. In times of recession a churn rate may be higher than usual so do take this into account however as a general rule if too many people are leaving the system after only a few years then it is likely that they were not happy with the franchise they bought into.

People leave franchise systems for many reasons and all franchises have a franchisee churn.  The franchise could have been sold on for a profit, people leave for personal reasons, not everyone is suited to run the franchise they have bought into and of course, some franchise systems just do not work.

Asking the franchisor how many people have bought into the system over the past 5 years and how many of them are still operating will give you a good idea of their churn rate.

Reasons for a high churn rates:

1. The franchise system does not work.
2. Recession period.  Market crashes.
3. New franchise - failed to test system properly
4. Bad management
5. Bad franchisee selection process

When to ignore a high churn rate.

When a business goes to franchise their model they should do it via pilot franchises to test how their model works in other areas.  This does not always go to plan though and a new franchise can see themselves developing fast in the proceeding years without having the proper procedures in place.  In this time they may see a high franchisee churn but have learned from their mistakes and despite the churn have a network of very profitable and happy franchisees.

Part 2 will be about talking with current franchisees and investigating how well they are performing and gaining their valuable feedback about the franchise system you are looking to purchase into.

Kind regards,


Matthew Anderson

The Franchise Shop

 

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