Why Do Franchisors Fail?

Franchising is full of success stories but there are many others who have fallen by the side too. So how is it some franchisors achieve major success while others fail at it?

Related: 4 Factors That Contribute To The Success Of A Franchise


1. Not Accounting For Franchise Costs

Most prospective franchisors only prepare a budget for the development of the franchise system and model but that’s only the starting point. Unfortunately, most don’t take into account the on-going costs of running a franchise. More that that, franchisors also need to understand there are additional costs involved for franchisee recruitment, training and even maintenance of the system, to name a few. Without knowing the actual financial overlay from starting through running a franchise and preparing for it, it’s no wonder the franchise seems unsustainable when all these new expenses appear.

2. Inadequately Prepared

Many franchisors start franchising before they are ready, before being able to prove they can re-create their success in another market or even figuring out their uniqueness. Furthermore, they may have under-developed operational processes, training programs, or may simply just be a knockoff in an already saturated marketplace.

Related: 5 Things Every Business Should Possess Before Franchising

3. Poor Recruitment

It takes great courage for a franchisor to turn away an unsuitable prospective franchisee’s money, especially when the franchise is young. However, some franchisors may place signing on new franchisees above all else. Unqualified candidates who go on to become franchisees may not be able to efficiently or effectively run the business, much less successfully. What happens next is the quality that customers associate with the brand will be negatively affected. Inevitably, this will snowball to everyone under the franchise flag.

Related: What Should Franchisors Consider During Franchisee Selection?

4. Looking For The Quick Buck

Unethical franchisors view franchising as a way to make a quick buck through franchise fees. And that’s all they really want, without any operational expertise or concern for franchisee profitability. But once prospective franchisees see franchise units performing badly, it will be pretty clear to them that something is not right with the franchise.

Related: The Worst Types Of Franchisors

5. Unrealistic Expectations

Some franchisors begin franchising with unrealistic expectations, thinking they are going to be the next big thing. But selling a franchise and selling your product or service are two completely different things, or even businesses for that matter. When things don’t go their way and they are unable to secure any franchisees, they start to give up. But franchising is like running a marathon, not a sprint. If a franchisor doesn’t have the patience to commit to a 3-5 year development plan, it would be much better to focus business expansion by way of company-owned units instead.

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