Choosing a franchising model is an important step in the expansion of your business and it’s not just because of how you’ll turn a profit – it also has implications for how you interact with your franchisees.

The most common franchise model is to obtain an upfront franchise fee (KX’s is currently $50K), which covers access to the company’s intellectual property, including a franchise manual, trade secrets and brand guidelines as well as training for key people. The franchisor will then take an ongoing royalty or support fee (KX’s is currently 8% of revenue), which gives the business owner access to the skills, experience and guidance at KX headquarters. On top of that, studios must provide a small contribution (4%) of revenue for the national marketing fund to spend on marketing campaigns, brand awareness and advertising.

For KX, maintaining a strong brand is essential and that’s why we select franchisees based on whether they embody our brand values. It’s no coincidence that the majority of our franchises are owned by people who started as trainers, clients or studio managers – they lived and breathed KX before they bought it. So already being a brand ambassador prior to signing on was key in being successful as the love for KX was already there.

Franchisees are your business partners

In the franchise world it’s widely understood that the money franchisors make is not from the initial sale, but from the longevity and solidity of relationships they have with their franchisees. Help them achieve greatness and the royalties will follow; simply put, if they succeed, then so will you.

Unfortunately, many franchisors focus only on the dollar amount in the sale of a franchise and is known in the industry as ‘transactional franchising.’ Not servicing your franchisees properly is a fast track to creating a disenchanted class of business owners who feel they have been ripped off. When greed turns the franchise relationship transactional, recruitment standards also fly out the window because the franchisor will accept pretty much anyone. This leads to a situation where 100 franchises start up, only to have 75 close down in the following years. As a result, the whole franchise suffers.

At the end of the day, franchisees are business partners, not employees or clients, and they are not just in a direct relationship with the franchisor but linked indirectly with every other franchisee under the brand’s umbrella. Be aware that a bad apple can spoil the bunch and seriously affect not only internal culture, but your franchise’s reputation as a whole, so it’s important to recruit well.

When franchising KX, I decided to centre what was best for the brand. In the fitness industry, all you really have is your reputation and that was a lesson I transferred into the business side. You can spend years building a reputation and it can be ruined in seconds from poor choices, so it was important that our franchisees understood that.

What to look for in a franchisor

If you’re looking to become a franchisee, what should you look for in a franchisor? I’ve heard too many stories of franchisors becoming best friends with potential franchisees only for that relationship to vanish as soon as they signed the contract and transferred the franchise fee.

I would start with a few questions: What sort of relationship do you want or need from the franchisor? And can you see this need being fulfilled? Do you trust the franchisor?

If possible, have a chat to existing franchisees to find out how their relationship works. You’ll get a feel for how the franchisor behaves, including whether they listen to grievances and take on feedback, and form a good idea of whether they’re responsive or slack, micromanaging or likely to trust you to run the franchise without interfering.

Franchise relationships are partnerships: franchisors and franchisees are on the same team, so the better they understand and communicate with one another, the healthier the franchise will be. 

ENDS

Aaron Smith is the founder of Australia’s largest pilates franchise, KX Pilates. He launched the business in February 2010 and current annual turnover is at 420 million pa. Smith stepped down as CEO in November 2018 to focus on brand innovation and international expansion. www.kx.com.au