The franchisor and franchisee relationship is one of the most important facets of choosing and running a franchise. Unfortunately, that relationship is not always perfect. Disagreements, misunderstandings, and yes, terminations and lawsuits can all result from mistakes by both parties. Here are the most common subjects of those franchisor/franchisee disagreements, and why they tend to stir up so much trouble.
Fees: Is it really a surprise that there is so much contention over franchise fees? These disagreements take place when franchisees believe that they are being treated unfairly, forced to pay fees that are seen as unreasonable. It’s a classic case of goal conflict between the two parties, and certain fee models, especially when it comes to royalties and upfront fees, can stir up trouble. Part of the reason is that franchisees cannot easily see what fees are used for, and part of the problem is due to franchisors focusing on the bottom line. Sites like FranchiseExpo.com can give you valuable details about a particular franchise’s fee model.
Upgrades: A certain amount of upgrading is inherent in the franchise process. After all, processes are refined, laws are changed, and technology is improved – all this requires upgrades to both buildings and common business tasks. The problem is that franchisees often dislike change, especially if past models and workflow proved successful. They may not see the reason for such (sometimes expensive) changes, and this is where things can get ugly. There’s a reason that Wendy’s is in a lawsuit with one of the largest franchisees in the business: change is hard.
Marketing Requirements: This is another common complaint, which occurs when franchises make a lot of marketing decisions at the corporate level and pass them down as requirements to all franchisees. Franchisees may have their own marketing ideas, may not see the point in certain marketing tactics, or may believe that some types of marketing are simply not effective in their area. Franchisors, on their part, create marketing strategies and budgets after spending plenty of time and money researching the best way to conduct business. Tension can result.
Employee Management: Franchisees may have their own personal preferences when it comes to the employees they hire, the schedules they set and how many part time vs. full time employees they use (and in what shifts). Wage expectations may also vary considerably. However, franchisors may wish to decide employee management details for themselves. This is similar to the marketing issue: A lot of thought goes into employee management at the top level, but it focuses primarily on efficiency, while franchisors may have a very different perspective.
Communication Issues: You may have noticed a trend here: Many of these issues could be addressed with better communication. A lack of communication between franchisor and franchisee is a recipe for trouble, especially when it comes to requirements, fees, and various budgeting parameters. Explaining the reasoning behind franchisor decisions and franchisee worries can go a long way in solving problems. A continued lack of communication, however, invites even more trouble.
Lack of Support: This is an issue opposite to too many requirements: Too little support in the form of training, guidelines, marketing materials and budgets can leave franchisees feeling adrift and uncertain. It can also impact performance in the long run due to inexperience and a lack of resources. Franchisors should provide a reasonable level of support to franchisees, especially in the first stages of the franchising process.