While both have merits, research leans toward improving revenue per location. Why? Because focusing on the financial health of each unit ensures operational efficiency, customer experience satisfaction, and sustainable growth. It’s about quality, not just quantity….and unit success always…means more new units purchased.
Spreading resources too thinly over numerous new franchise sale locations can dilute overall brand quality and customer experience, and franchisee success. However, an emphasis on enhancing revenue per location promotes a culture of continuous improvement, leading to a stronger, resilient franchise system with a scalable sellable brand.
Digging deeper into this operating concept, revenue per location serves as a more accurate reflection of a franchisor’s performance and ability to scale larger. By focusing on each location’s profitability, franchisors can identify and rectify operational inefficiencies, optimize business models, build one-on-one success coaching strategies to support local market dynamics….and grow.
Enhancing revenue per location often goes hand in hand with increased customer satisfaction. It implies that a franchise delivers value to its customers, cementing brand loyalty and fostering repeat business. When a franchisee’s ROI is strong, it drives them to become multi-unit players who scale quickly.
Often opening new locations too quickly does not necessarily indicate actual business model growth and often is just a reflection of a strong franchise sales team, and it might mask underlying issues. Over-aggressive franchisee unit sales might be achieved at the cost of quality control and the strain on resources due to the potential anticipation of getting PE funding and a higher valuation.
A 2018 study published in the Journal of Business Venturing Insights suggests a significant correlation between revenue per location and customer satisfaction in franchising businesses. The researchers examined over 300 franchises across various sectors, and their findings reinforced the notion that product or service quality improvements often lead to enhanced customer experience and higher revenues.
Another research from the International Franchise Association (IFA) on franchising growth strategies showed that 78% of franchisors focused on enhancing revenue per location reported increased profitability over five years. This underscores the importance of continuous improvement and fine-tuning operations at the individual franchise level.
2020 research conducted by the Franchise Business Review provides further insight into the significance of continuous improvement and operational efficiency in franchising. The study examined the critical success factors in the franchising business across the United States and compiled data from over 500 franchise brands across various industries. The key findings suggested that the most successful franchises consistently invested in operational improvements and prioritized high-quality training and support for franchisees.
Moreover, a 2021 report from the Franchise Performance Group emphasized the evolving consumer trends and their impact on franchising. The research highlighted that franchises that adapted swiftly to changing consumer needs – for example, by integrating digital technologies for online orders during the COVID-19 pandemic – experienced significant growth in revenue and customer satisfaction.
These studies further reinforce the importance of operational improvements, having franchises manage themselves by key detailed business metrics, adaptability, and responsiveness to market changes in achieving sustainable growth in the franchising sector…. not just selling more franchises.
While the unit sales size break-even point for franchisors depends on numerous factors and differs across industries, a general rule of thumb suggests that franchisors typically break even after selling between fifty to one hundred franchise locations.
Racing to a 100-unit franchise chain or more size is a great goal, but is it about size or success?
This estimate assumes the franchisor’s initial investment in creating the franchise system, which includes costs related to developing operations manuals, training programs, marketing materials, and other necessary infrastructures. However, it’s important to note that this is a broad estimation, and actual figures may vary based on each franchisor’s specific circumstances and business model.
As a franchisor’s business grows, it is vital to consistently evaluate the system and make adjustments to ensure collective success. across industries and regions. However, it is widely understood that reaching a 100-unit size is a significant achievement in the franchising world.
A report by FranData suggests that only about 20% of franchisors have managed to surpass the 100-unit mark. Even though franchises continue to seek expansion capital, PE firms like to invest in fast-growing concepts that are approaching or have passed this number for their investment portfolios.
This emphasizes the importance of a strategic growth plan, strong franchisee support, and a robust business model for franchisors aiming to reach this level of expansion. Further research reveals that successful franchising hinges on robust operational systems, adaptability, and strong relationships between franchisors and franchisees. A 2020 study by the International Franchise Association indicated that franchisors with excellent communication, solid support, and ongoing training structures tend to have more successful franchises.
These franchisors often facilitate regular meetings, provide usable success systems, and make performance data available to franchisees. These relationship-building efforts produce a more cohesive brand image and robust overall performance.
The most successful franchisors are strategic in their approach to growth and expansion. They leverage data-driven insights to assess the marketplace, identify areas for potential development, and create systems that can effectively scale with demand. As the franchisors reach their 100-unit or 1,000-unit objectives further, the franchisee and franchisor gain equally.
Recent studies conducted in 2022 have shed additional light on the dynamics of franchise expansion. A survey by the Franchise Business Review reported that consistent brand messaging and franchisee performance management across all franchise locations are crucial factors in reaching 100 locations or more.
Simultaneously, a report by Franchise Grade highlighted the importance of a robust franchisee selection process, as this significantly impacted the expansion rate and overall franchise success.
From franchisor status launch to closure, the average lifespan of franchisors varies widely depending on factors such as the industry, market conditions, business model, franchisee support, and brand strength. However, according to a report from the International Franchise Association (IFA), the average franchisor operates for 10 to 25 years before closure.
This period includes the early growth stages, steady-state operation, and eventual decline or sale of the business.
To grow your franchisor business and become an industry player, research says… make your franchisee successful….and they will make you successful.
Written by Paul DiModica, C.O.O./C.S.O. of TruOI. TruOI is a real-time coaching, managing, measuring, training, reporting, and documenting operational intelligence success platform that uses your existing technology.