What it takes to be a healthy franchise system

By Sarah Stowe | 09 Dec 2015 View comments

A recent report has unveiled five key factors that are shared by healthy franchise systems.

The US based FranchiseGrade has discovered that so-called unhealthy franchise systems are charging franchisees a lower percentage in upfront franchise fees than the more successful business models.

Unhealthy franchise systems also receive 175 percent more in rebates from their suppliers.

In the less successful systems, high franchisee turnover rates are a problem. Only 20 percent of franchisee turnover in these businesses is attributed to transfers against 41 percent  of franchise systems in the top quartile – based on net franchised outlet growth.

The report suggests franchisors should make the most of distinctions between their system and competitors.

Five signs of a healthy franchise chain

  1. Consistent positive growth rate [measured above six percent in the years 2010-2014]
  2. Positive franchise outlet growth [measured above 11 percent]
  3. Less litigation
  4. Higher initial franchise fees [12.2 percent higher]
  5. Higher royalty rate but lower advertising fees