4 Tough Questions You Must Ask Before Signing a Franchise Deal
Vetting a fitness franchisor goes well beyond reviewing the terms in the company’s franchise disclosure document
Before signing on the dotted line, you must closely examine your potential fitness franchise partners. Your research should center on determining how transparent and consistent they are—two factors that will speak to not only the franchise’s overall potential but the success of your individual unit.
Here, Athletech News outlines five questions that will identify both opportunities and potential challenges with prospective franchise partners.
Does the franchisor share details about how the marketing funds are collected and spent within the franchise system?
Trust is essential in building collaborative relationships, even more so in a fitness franchise environment. When potential franchisees decide to enter into an agreement with a franchisor, they trust their investment will be well protected and supported. Likewise, when franchisors approve new franchisees into the system, they trust that the franchisee will adhere to all the operational brand standards, ensuring members have a consistent experience wherever they visit the brand.
Understanding the interdependent nature of the importance of trust within the franchise system is critical. Transparency, consistency, and communication are the most important aspects of trust in the franchisee-franchisor relationship; let’s take a closer look.
Transparency is often at the top of the list of characteristics needed to build trust in franchisee-franchisor relationships, and for good reason. The franchisee needs to have a clear understanding of two key areas before buying a franchise: how the marketing fund is managed and how franchisees who don’t follow the brand standards are addressed.
It’s common in the fitness franchise world for franchisees to pay into a marketing fund on top of their franchise fee so it’s important to understand if the monies collected for the marketing or advertising fund are spent on building brand awareness and driving new members to the individual fitness locations.
Prospective franchisees should also ask how much money collected from franchisees goes towards administrative costs and what those costs are. And specifically how the fund is divided amongst the markets where the brand operates. A good franchisor partner will fully summarize how these funds are spent annually. If they don’t, it should be a red flag around their willingness to be transparent and ability to promote and advertise the brand.
How does the franchisor monitor and assess brand standards and overall member satisfaction?
The need for transparency extends to how the franchisor addresses non-compliant franchisees within the system. The main advantage of buying a franchise business is its significantly lower failure rate. A study by FranNet, one of North America’s most respected franchise brokers, found that 85% of franchised units still operate after five years of business operations. Fitness franchisors must take all necessary steps to protect this low failure rate. And that starts with protecting the brand’s reputation, which is built over time on their members’ trust in a consistent experience.
How does the franchisor manage underperforming locations and franchisees within the system?
Franchisees who cut corners, fail to follow the brand standards, or treat their employees poorly risk negative publicity and a poor member experience that puts the entire system at risk, not to mention the investment dollars of every franchisee. All it takes is one poorly operated location and a lack of action by the franchisor to undermine the brand equity, especially for other units within the same local trading area. Ensuring you understand how the franchisor measures member satisfaction and adherence to brand standards is essential to your and the system’s success.
It is also imperative for you to understand how the franchisor deals with franchisees who are non-compliant with the operating system, as other franchisees are largely powerless to correct the issues themselves.
How are new locations determined and awarded within the existing franchise system?
Consistency is another core principle of building trust in the franchisee-franchisor relationship, and its importance shows up in several critical areas of the business. The main area where consistency comes into play has to do with how the system grows. Not only as it relates to how system growth impacts the existing fitness franchise locations but also how those growth opportunities are awarded within the system of existing franchisees. A transparent approach to both, executed consistently across the system.
Unit growth is a core tenant of how franchisors measure the success of their brand and, when done sustainably, provides benefits to existing franchisees as well. The more locations the brand has, the more brand awareness the system generates amongst potential consumers, adding new memberships for the entire system.
New unit growth can become a detraction on individual franchisee success when the franchisor undertakes a growth-at-all-cost mindset. Too many locations in the same trading area can negatively impact same-unit membership growth year-over-year. While the franchisor will likely continue to grow its top-line sales through increasing units, the individual franchisee could see their memberships decline if an additional unit is opened too close to their location.
Ensuring you understand how growth is determined within your franchise system is important to your overall success. How are new locations selected? What tools or processes do they use to assess the viability of that location and its potential cannibalization of members on existing units? Great franchisors have a scientific approach to making these decisions and will openly share that process with their franchisees.
Also, franchisees must understand how growth opportunities are awarded within the system. All too often, ‘market deals’ with large multi-unit groups are the preferred approach to awarding new locations. But there still needs to be avenues where top-performing single-unit operators can expand from one fitness location to multiple should the franchisee aspire to grow. If this isn’t the case, you may forever find yourself as a single-unit operator. It’s worthwhile if you are keen to build a portfolio of fitness locations to explore these decision-making criteria with your franchisor. Asking for specific examples of how the franchisor helped single-unit operators grow in the past is an excellent way to judge if that potential exists within the system today.
Does the franchisor use two-way communication tactics to ensure the franchisees understand what’s happening in the business and have meaningful opportunities to share feedback about how the system performs at individual-unit levels?
Effective communication between franchisees and franchisors is the cornerstone of successful collaboration within a franchised system. Both franchisees and franchisors need to be able to talk with one another frequently to share information, knowledge, and ideas, which helps everyone move towards the common goal of system success. Understanding how communication happens in a franchised environment can help you choose to partner with a fitness franchise that values two-way communication.
Look for fitness franchisors that leverage tactics like annual or biannual all-franchisee meetings, annual franchisee satisfaction surveys, a franchisee advisory committee, and easy access to leaders within the franchise system. As a franchisee, doing so will ensure that you have frequent opportunities to share feedback about how the franchise systems, programs, and tools perform at your unit level.
Determining which fitness franchise to invest in can be overwhelming. The questions in this article can help you understand how the franchisor is working to promote a strong and healthy system for all of its franchisees.