Skip to Content

Franchisors Should Evaluate Competitors on a Regular Basis

Published on March 04, 2016

Share Tweet Share

During current times, franchisors operate in a very competitive environment as they seek to attract and add qualified franchise candidates to their franchise network. As candidates look to obtain a favorable return on their franchise investment the most attractive franchise opportunities should be represented by the healthiest franchises. However, in the real world there are a number of franchise systems that don’t represent a healthy franchise system.  Many of these unhealthy systems aggressively seek franchise candidates and compete for investment dollars. In order to grow their system franchisors need to offer the best opportunity and investment value to prospective franchisees. For these reasons, it’s important for franchisors to perform a competitive analysis of franchise systems that are direct and indirect competitors.

 It’s a given, that businesses should do a competitive review on a regular basis and this includes franchisors.  Just as franchisors expect their franchisees to be aware of their competitors and new programs or promotions, franchisors should do the same.

Uni-K-Wax Banner, Made The Grade

The types of competitors that franchisors should review include direct competitors; who represent franchises in their own business segment and indirect competitors; which represent franchises in a related segment. For example, in the Children’s franchise sector, children’s fitness and enrichment programs could be direct and indirect competitors.

Given the number of potential franchises that could be considered direct and indirect competitors, it’s best to begin with those that most closely match up to your particular franchise opportunity based upon investment, size and maturity. Once you’ve identified the franchises, set up a spread sheet and rate and compare the following items to your franchise opportunity:

  • The initial franchise fee. What does the franchisee receive for their fee?
  • The quality and size of the franchisee territory. Is it exclusive and protected?
  • Royalty fee. Any incentives to pay a reduced royalty by increasing revenues?
  • Advertising fund. Is it in force, what are the payments and how is it structured and administered?
  • Is there an Item 19 disclosure? If yes, how complete? If no, consider walking away!
  • The initial and renewal terms of the franchise.
  • Quality and hours of franchisor training and start-up support.
  • Litigation comparison among franchise programs.
  • Ongoing franchisor support. Are there differences in terms of services and support?
  • Marketing programs and the use of social media. Technology can provide an edge if properly used and franchisors on the cutting edge of new technologies can have a competitive advantage.
  • Operational efficiencies. Franchisors that provide their franchisees the operational tools that allow them to run their business more easily will provide their franchisees more value for the fees that they pay.

Individuals looking to invest in a franchise expect to receive the best ROI from the money that they are investing. Since franchisors compete with other franchisors for the same investment dollars it’s important to be aware of their strengths and weaknesses versus other similar franchise opportunities.

About the Author: Ed Teixeira
Ed Teixeira is a recognized franchise expert with over 40 years’ experience in the franchise industry. He has served as a corporate executive for franchise firms in the retail, manufacturing, healthcare and technology industries and was a franchisee of a multi-million-dollar home healthcare franchise. Ed and Richard Chan are the authors of a new textbook, Franchising Strategies: The Entrepreneurs Guide to Success, to be published on July 1st by Routledge on July 1st. He has participated in the CEO Magazine Roundtable Meetings with business leaders from around the country and has spoken at a number of venues including the International Franchise Expo and Chinese Franchise Association in Shanghai, China. Over the course of his career, Ed has been involved with over 1,000 franchise locations and launched franchise concepts from existing business models. Ed can be contacted at [email protected].

Thinking about buying a franchise?
Not sure how much can you afford?

Fill out our Franchise Affordability Calculator

Related Articles

Hidden Ways Franchisors Can Manipulate Item 19

60% of franchisors provide a financial performance representation (“FPR”) under Item 19 in their Franchise Disclosure Document.

Read More

Franchisors Prepare to Answer These Questions the Right Way

As part of a franchise candidate’s due diligence process, it should be expected that certain questions will be directed to franchisor staff.

Read More

An Office Flood Taught Us How to Manage Remote Employees

It was quickly apparent that some employees struggled working from home. They had never experienced the challenges associated with time management.

Read More

The Top 10 Franchise Grade Facts & Figures From 2017

Detailed studies on emerging franchise success rates, errors in Item 20 disclosure and sector performance, Franchise Grade’s reports help you.

Read More

The Meaning of Changing Franchise Investments

There have been various changes in average franchise investments during this time, some changes were more dramatic than others.

Read More

Franchise Candidates Need to Dig Deeper

Before a prospective franchisee invests they must review the information disclosed in the Franchise Disclosure Documents.

Read More

Franchisors Need to Avoid Wasting Their Franchisee Leads

When franchisors strategize their system growth, the major focus is placed on the amount and quality of their franchisee leads.

Read More