Setting franchise fees both initial and ongoing

Oneof the more emotive aspects of any franchisor/franchisee relationship is that of the franchise fees.

The setting of fees, both initial and ongoing, is very much a balancing act to ensure that both the franchisor and the franchisee achieve the rewards they deserve for their respective contributions to the business.

If the relationship is to endure, neither party should get rich at the expense of the other.

Author: Steve Felmingham, Senior Franchise Consultant at The Franchising Centre

It should be remembered that the franchisor's income does not go straight into its coffers as profit The initial franchise fee it charges to the franchisee will be the mechanism by which it recovers its own franchise development costs and the specific costs relating to setting-up each franchisee in business (of which, more later).

Of the on-going franchise fees, only a small proportion may be profit with the rest going to pay for the support and back-up that the franchisor is contractually obliged to provide to its franchisees.

Firstly, we will examine the situation from the perspective of the franchisor. The setting-up of a franchised network, perhaps involving the conversion of a company-owned chain, can be a complex, time-consuming and costly business for the franchisor at least in the short term.

At the outset, a prospective franchisor will have to cover the costs associated with putting all the necessary elements of the franchise in place This might include advice from franchise consultants, franchise-proficient lawyers, accountants, trademark agents, and territory mapping specialists, etc.

The components will include the drafting of the franchise agreement, the operating manual, brochures, prospectus and other promotional materials Other costs may include the recruitment of specialist staff to oversee the franchise network and perhaps additional premises from which they can operate.

Having created the franchise structure, the franchisor will then incur further costs in promoting its offering and advertising for franchisees. This may involve a mix of media, including franchise exhibitions, websites, and advertising in newspapers and magazines.

Having generated the enquiries, the

About the author

franchisor will then have (both in terms of time an sifting through the respo usually be through a hig recruitment process invo assessment of the origin several interviews and, i credit checks and perso

It is only at the end of this process that the franchisor will offer franchises to the candidates who possess the right qualities and the right amount of capital The recruitment stage can be the most expensive of the whole process whilst the fledgling franchisor tries to discover the most effective mix of media and the right budget required to generate the number of candidates it needs to grow its network at the desired rate

Having selected its candidates, the franchisor will then need to devote a considerable amount of time and effort to ensure that they are adequately trained and prepared to successfully launch and operate their businesses The franchisor

Steve Felmingham, having been involved in franchising for over 28 years, is one of the owners of The Franchising Centre, Europe’s largest specialist franchise consultancy steve

Felmingham has been a franchisee, franchisor, an international master franchisee and an international franchise consultant, developing, launching and managing dozens of UK and international master franchises in Europe, U.S., Canada, South America and Australia.

felmingham@thefranchisingcentre uk

www thefranchisingcentre com within its organisation to handle the throughput and that its staff are skilled in both the day-to-day operations of the proposed franchise business and their ability to train the candidates

In reality, it will probably be some time before the franchisor's income, both in terms of initial franchise fees and on-going fees, reaches a level that provides it with a profit Hence setting-up a franchised network must always be seen as a medium to long-term strategy

Similarly, whilst the benefits of franchising from a prospective franchisor's standpoint are said to include the ability to expand its business using other people's capital (i.e. the franchisees) it is clear that a franchised network cannot be established without (at least initially) some reasonably significant levels of capital investment.

Initial fee

The selection and recruitment of a new franchisee will hopefully be just the beginning of a long-term commercial relationship As such, the franchisor should not view the initial fee as a mechanism for making large profits. The franchisor should, instead, aim to make the bulk of its income over a longer period from the income and profits generated by its franchisees.

me before the of initial franchise fees hat provides it with a d network must g-term strategy.

e initial fee should, therefore, be viewed as a joining, or entrance fee, that at the same time enables the franchisor to recover a proportion of its development costs, and the specific costs, in terms of the training and recruitment, of setting-up each specific franchisee in business.

The initial fee is usually paid as a lump sum at the time the franchise agreement is signed and before the franchisee has received training, a copy of the operations manual, or commenced trading Whilst the size of the fee is intended to recover the franchisor's costs, it makes sense to keep the fee at as low a level as possible as the number of prospective franchisees, who can afford a fee of, say, £30,000 will always be smaller than those who can afford £10,000

A franchisor must take care that it does not price itself out of the recruitment market.

Knowing at what level to set the initial fee will be a problem for a franchisor in its early days. There is no standard pattern, although there may be an observed similarity between the fees charged by different franchisors in the same line of business.

Whilst this is perhaps only to be expected, given that these companies probably had similar development costs, this may also be evidence of benchmarking with franchisors not wishing to place themselves at a commercial disadvantage by charging a higher fee than their competitors

A further consideration for keeping the initial fee at a low level, often over-looked by overseas franchisors looking to enter the UK marketplace, is that having paid a large up-front fee a franchisee may be left with insufficient capital to invest in the business to make it successful

In such circumstances, the franchisor does run the risk of handicapping the franchisee's business from day one, whereas if it had charged a lower fee it would be more likely to have the franchisee in the position to generate greater levels of profit and over the longer term to pay more in on-going fees

In the past commentators have suggested that the initial fee element should be set in the region of 10% of the total start-up costs of the franchisee's business. Such a relationship is less relevant in the modern market, given the boom in the number of relatively low-cost service industry franchises in which the franchise fee may be the largest single cost element.

Initial franchise fees generally remain modest in the UK and it is standard practice to have fees that don't vary according to the territory or location It is quite a common temptation for a new franchisor to want to charge a higher fee for a territory with a perceived greater-than-average opportunity.

Such a temptation should, however, be avoided in favour of a level playing field. There will be time enough for the franchisor to earn from its stronger territories through its on-going franchise fees or product markups

One situation where the initial fee may be reduced or waived is where, in the absence of a fully-piloted franchise concept, the franchisor offers a special deal to the first of its test or development franchisees Such franchisees are accepting a higher level of risk and may find the franchise system changing as any wrinkles are ironed out.

This arrangement should not over-ride the principle that the franchise agreement should be the same for all. In such cases, any discounts or variation of terms should be covered by a side letter

When a franchise network has reached maturity, and its initial development costs have been met from the up-front fees paid by the early franchisees, then the franchisor may start to make significant profits from franchise sales Indeed, after a franchisor's brand has developed and gained market strength there may be a case for increasing the franchise fee to reflect such progress.

Market forces may also come into play in situations where the demand for the franchise exceeds the number of territories that are available This can lead to a progressive elevation in the franchise price Nevertheless, the fee should never be elevated to a level that deters buyers. The franchisee must always feel that he or she is getting good value for money.

On occasions, a franchisor may have asked the prospective franchisee to pay a deposit, which may or may not be refundable in full or in part Such a deposit may be sought if the franchisor will be spending time and resources on the prospective franchisee's behalf in perhaps helping it to investigate the viability of an area or territory, or find suitable premises.

A positive factor for a franchisor is that whilst its early overheads may be high its income should from that point grow faster than its expenses The staff initially required to service five franchisees may also be sufficient to service, say, 15. Each new franchisee coming on board represents additional income and as the turnover of each rises the franchisor's income will grow proportionally

A franchisee can generally be regarded as a long-term contracted source of income to the franchisor. A franchisee having perhaps invested heavily in its new venture (and therefore having his or her neck firmly on the block) will normally be more highly motivated than an equivalent company employee As a result, they can generally be counted on to direct their efforts towards continually boosting their turnover and thereby the income of the franchisor.

Another issue to consider is the supply of initial equipment and any other items that are necessary for the running of the franchisee's business Often the franchisor will supply such items or arrange their supply. In this situation it is considered unethical for the franchisor to regard the supply function as a source of hidden profit. The franchisor will nearly always be found out, and the whole relationship and trust between the franchisee and franchisor will be jeopardised.

Often a franchisor may achieve discounts or economies of scale through its bulk purchasing arrangements and, unless the franchise is based on mark-ups, these discounts should be passed on to the franchisees. It is generally considered acceptable for the franchisor to retain a modest margin or handling fee for buying in supplies, but the underlying ethos must always be to give the franchisees the best possible value for money.

Similarly retained commissions, retrocessions, or other kick-backs from suppliers should be avoided and certainly not hidden It is better to declare these amounts and demonstrate how they are used for the promotion of the business

In situations where the franchisor provides the franchisee with a turnkey business and equips the outlets ready to trade similar principles should apply. The franchisor should make no hidden profits and be prepared to provide full details of the costs it has incurred including, where appropriate, invoices from suppliers.

Initial and on-going support

As stated earlier, the initial franchise fee should be regarded as covering the cost of the franchisee's recruitment, selection and training The on-going fees, whether received as a percentage of turnover or a mark-up on goods supplied by the franchisor, should be partially utilised to fund the cost of providing the essential back-up and support to the franchisee's business.

Initial practical guidance and support might include advice on finding, acquiring, designing and fitting out suitable premises The franchisor might also provide guidance on the equipment required and where to obtain it. There might also be advice on training, business development, generating sales leads, marketing and advertising.

Training is of particular importance as the whole ethos of franchising is that a newcomer to the business will be operationally trained to run its business in accordance with the franchisor's proven operating system and methods. The content and duration of the training programme varies from franchisor to franchisor, although it may involve on-thejob training in an existing outlet, or in the field

It could include classroom modules, sales training, learning how to use equipment or processes, and familiarity with or preparing the products. The training must enable the franchisee, in a relatively short period of time, to become expert in all areas of the business prior to opening

The franchisee may also have to learn how to operate a small business, perhaps for the first time in their life. They may, therefore, need to be instructed as to how to keep accounting records, how to manage cash and stock, and aspects of recruiting, managing, training and coaching staff, as well as the various legal and fiscal requirements and obligations associated with running a business.

The franchisor may be expected and, indeed, contractually ob certain continuing supp depending on the type include:

● Regular visits by the fr support staff to assist preventing, problems franchisee to develop their business.

● Liaison with the franchisor and other franchisees to exchange ideas and experiences

● Continuing product research and development, including investigation of the marketability and compatibility of new products/services with the existing business.

● Training and re-training facilities for the franchisee and perhaps their staff

● Market research

● National and local advertising and promotions.

● Bulk purchasing opportunities.

● Management and accounting advice.

● The organisation of national conferences and regional meetings, and the publication of newsletters and other literature

A franchise should be viewed as a longterm relationship in which the initial concept is being continually refined and developed over time with input coming from both the franchisor and the franchisees

On-going fees

In return for its on-going support and as its primary source of profit, the franchisor will charge the franchisee an on-going fee. The most common method of doing this is to charge a management services fee which p p materials that the franchisee sells or uses, it may take its return through mark-ups Naturally, there are pros and cons with both methods

Where the products can only be sourced through the franchisor and are competitively priced as a result of the franchisor achieving economies of scale then the franchisee may be quite happy with mark-ups However, if the franchisee feels that the franchisor is making an excessive margin on the goods, or it discovers that the same or similar goods can be obtained more cheaply elsewhere, problems could easily arise.

Where a franchise involves a requirement or obligation to buy products from the franchisor - known as a product-tie - there could be competition law ramifications. Such product ties can, in certain circumstances, be deemed anticompetitive and so franchisors operating such arrangements will have normally made provision for them in their franchise agreements

The competition authorities will generally uphold product ties within a franchise environment, provided that the franchise agreement has a term, or break-clause, of no longer than five years wever, the majority of franchisors derive ir income through a management vices fee, calculated as a percentage of turnover. To establish the rate of these fees, which again should be constant across the network, the franchisor needs to assess the financial performance of its pilot outlets in relation to the anticipated turnover, gross profit and costs of the franchised units.

This gives rise to another careful balancing act. If the rate is set too high, the franchisees may well resent what they consider are excessive fees Such a situation has led to disquiet in many franchise networks.

On the other hand, if the franchisor sets the rate too low it could end up making insufficient profits and could lack the funds needed to adequately support its franchisees It is of key importance that the fees are set at such a level as to allow the franchisor to afford to deliver the level of support which the franchisees need, and indeed deserve, without negatively impacting upon the franchisees' operational profitability

Based on the performance data available, or the performance expectations, for both company-owned and franchised outlets, the on-going fee should be set at a level that is long-term viable for both parties so that each may achieve a reasonable profit and return on capital In setting the fee, it is also important to consider the percentage charged by other franchisors in the same sector

Unfortunately, would-be franchisees often simply look at the headline percentage figure and look no further to find out what this translates into in actual profit or the level of support services.

The range of management services fees that are charged varies enormously between different types of businesses, depending on their relative turnovers, profitability and margins. Convenience stores, for example, may have on-going fees of only a few percent because they operate with low margins, but high turnovers Service businesses on the other hand, with wider margins, may be at the other end of the scale with fees as high as 25% or more as they have very low direct costs.

The fee should, of course, also reflect the level and range of services provided by the franchisor It should also be borne in mind that the higher the level of fee, the higher is the likelihood that franchisees will resent paying it, and the more they will expect in return.

The franchisor should recognise that it is likely to generate less income from a franchised outlet than it would from a company-owned one This is a given since it is the franchisee's capital that has established the unit and it is the franchisee who is exposed to all the day-to-day problems that occur.

When collecting the management services fee many franchisors ask to complete a return sho and fee calculations So also seek information as product or service type, regarding local marketin activity. This not only provides th information relating to the payment, but other data which can help the franchisor track what is going on in the network At the individual franchisee level such data can be useful in identifying performance issues at an early stage. charge. Such a method is not recommended by franchising purists as it can be indicative of a franchisor who is happy with a minimum level of income, regardless of the success or otherwise of the franchisees A system in which the franchisor is only successful if its franchisees are successful is clearly a more mutually beneficial approach.

Franchisors will also need to examine at some stage whether their franchisees are declaring all their income, particularly in franchises where some customers pay in cash From a franchisor's viewpoint, underdeclaration of sales is the worst crime that a franchisee can commit. It will, of course, be a breach of the franchise agreement and technically grounds for termination.

Most franchisors would forgive any accidental or inadvertent underdeclaration, whilst a tough line will be taken against any franchisees where substantial or repeated underdeclaration takes place.

The onus is clearly on the franchisor not to rely totally on trust, but to build into the franchise some monitoring systems that make it harder, if not impossible, to hide turnover Such fail-safe techniques include regular audits, mystery shoppers, spotchecks and modem-linked tills which feed details of all transactions electronically to the franchisor. Companies that fail to take such precautions are likely to be sowing the seeds for later difficulties.

Having different percentage management service fees for different franchisees within the same network is highly inadvisable Differing fee levels encourage negotiation, lead to uncertainty, and breed discontent among franchisees. There are, however, examples of franchisors introducing tiered structures whereby franchisees are rewarded by having their fee percentages reduced for achieving targets or hitting turnover thresholds seen to be fair by all, eturn for both the the outset and over conclusion, the on-going fee must be w enough so that the franchisee can pay it and still make a reasonable profit commensurate with the capital employed. The franchisee should also ideally continue to feel it is getting good value for money. On the other hand, the franchisor needs to cover the cost of the support services it provides and make a reasonable profit itself - a true balancing act.

The reduction tends to apply on the amount of turnover they achieve over the threshold, rather than on their entire turnover. Such structures can act as a good incentive to perform and are generally a positive tool when used sensibly To work effectively, the thresholds need to be reviewed upwards from time to time as otherwise franchisees may achieve them simply due to inflationary trends without having achieved any actual increase in sales.

Advertising levy

In addition to the on-going management services fee, or product mark-up, many franchisors take an additional, but generally smaller, percentage of turnover known as the advertising or marketing levy

One of the principal advantages of becoming a franchisee is that you are part of a larger network, perhaps enjoying the benefits of strong brand recognition and national advertising To assist the franchisor with the funding of this continuing brand development, franchisees are required to make a contribution in the form of a levy.

By making it linked to each franchisee's turnover, the more highly performing franchisees, which it could be argued have benefited most, make a larger contribution than the weaker performers

It is important to get a degree of franchisee involvement in the control and expenditure of the money generated by the levy. Over time, the total of the contributions could be substantial and the franchisor should ensure that the fund is not only independently audited, but that there is a committee made up of franchisee representatives and budget and adminis

As the fund will ultim franchisor and the fra sense for the former financial contribution the same basis as tha recognition of the be the company-owned franchisor might also top-up the fund with additional contributions, particularly in the early days.

Summary

W ithin the franchisee/franchisor relationship there are several financial transactions:

● The initial franchise fee.

● The on-going fees either calculated as a percentage of turnover, or taken (invisibly from the franchisee's viewpoint) as a product mark-up

● The advertising or marketing levy.

In return for the fees, the franchisee will expect their franchisor to train them, set them up in business and provide an ongoing support service, as well as continue to develop the concept as a whole

It is essential that the fee levels are seen to be fair by all, and provide an adequate financial return for both the franchisor and its franchisees from the outset and over the long-term n

Theprofitability of each franchise depends on the franchisee successfully absorbing the franchisor’s know-how and faithfully replicating the business system uniformly across the network. It’s no overstatement to say that a true business-format franchise cannot exist without a practical, effective operations manual.

Author: Penny Hopkinson, Founder of Manual Writers International

A franchise is a business relationship between a franchisor and a franchisee. The franchisor is the owner of an established business who offers to sell or licence their business model to the franchisee

The franchisee is the person or entity who buys into that business model and agrees to operate it according to the franchisor's specifications

Franchisees must receive appropriate support and guidance from the franchisor to achieve operational excellence in all business areas. Support includes initial, ongoing and development training and the operations manual, which focuses on success and profit through continual improvement – the constant effort to improve processes, products, and services.

Why provide an operations manual?

After the franchise agreement has been signed, the operations manual is the essential tool in the franchisee’s box to set up the new franchise and run the business daily A comprehensive, practical, up-todate manual is at the heart of every successful franchise.

It is a comprehensive guide for the franchise owner/manager and their team on how to:

● Conduct business ethically

● Create a secure, profitable, and lasting business.

● Protect the franchisor’s system and the franchisee’s investment.

● Maintain quality standards and consistency of products and services

● Guarantee that the brand is presented professionally and consistently

● Work together more efficiently and effectively – i.e. franchisees can potentially do less and accomplish more.

● Implement an ongoing monitoring system to ensure quality management and compliance

● Avoid recruiting team members who do not share the same traits and values as the franchisor.

● Troubleshoot problems and find solutions.

About the author

● Resolve any disputes franchisor and franchi of the agreement

● Renew the franchise t business

Further, the process of d franchisor’s know-how a system allows you to:

● Hone and sharpen your business model

● Emphasise the value of the franchise offered to your franchisees

● Be precise with who is a good fit (or not) for the business and how best to engage with them.

Creating an operations manual also protects the franchisor’s Intellectual Property (IP) because it will be copyright protected

Some franchisees may argue that the operations manual is written merely to penny@manual-writers com www manual-writers com any ethical franchisor with whom I have worked to create a new manual, upgrade or convert one.

Penny Hopkinson is the founder of Manual Writers International, established in 1986, to help franchisors create their operations manuals using a simple three-step strategy.

In 2011, she was appointed a Companion of the British Franchise Association in recognition of an outstanding personal contribution to the development of franchising in the UK.

Her latest book, 'Manual Magic: Create the Operations Manual Your Franchisees Need to Succeed', will be published early in 2023.

While a well-written operations manual needs to underpin the franchise agreement obligations with which all franchisees must comply, it must be balanced by documenting those obligations with which the franchisor must comply. Central to these obligations is confirmation in the manual that you will support your franchisees with advice and guidance because you want them to succeed – and become profitable

What happens if you don’t have an operations manual?

If you don’t provide your franchisees with an operations manual:

● Because it is a contractual obligation, you will breach a fundamental requirement of the franchise agreement when the first franchisee signs up.

● If there’s no operations manual, you will also be in breach of the franchise agreement because you won’t be able to reflect any changes, modifications, or techniques to the content and keep it up-to-date.

● Your know-how and the business system will be unprotected, and anyone working in the business can steal your ideas to he operations the franchisor. But sor with whom I al, upgrade or tart a similar business It can be challenging to prove that they are ‘passing off’ the franchisor’s business concept and operations as theirs.

Your franchisees won’t be able to take full advantage of your know-how and faithfully replicate your business system So, they will use their interpretation which may be wrong Almost certainly, your system will not be applied uniformly across the network – the basic concept of a successful franchise. Franchisees are likely to be offbrand, leading to confusion among customers if different messages, logos and non-standard colours are used in marketing and promotion

The repercussions can be catastrophic. Say a franchisee fails to operate according to the laws and regulations covering all food businesses that protect the consumer in many parts of the world because these businesses are considered a potential danger The franchisee operates purely on instinct and what they know from cooking at home. An elderly customer becomes ill with food poisoning after eating a chicken sandwich – and dies – because of crosscontamination. The franchise is closed by the local health authorities, and the franchisee is prosecuted and fined This is reported in the local, regional, and national news resulting in permanent damage to the brand.

Customers must be 100% confident that the outlet prepares and serves excellent safe food the first time, every time, in a hygienic risk-free environment Therefore, the franchisor should have operated and fully documented a comprehensive food safety management system across the whole food supply chain – from growers or manufacturers, through distribution and preparation – to the customer’s plate.

How do you define know-how?

Know-how is defined as confidentially or closely held information. This will be in the form of technical data, formulas, standards, technical information, specifications, processes, methods, handbooks, raw materials – i.e. all information, knowledge, assistance, trade practices and secrets –and improvements

An established franchisor’s know-how will have been accumulated over many years –much of it learned the hard way. Know-how will likely be scattered like confetti in files across a digital network. Even in a mature franchise, much good content may reside in a team member’s head In a newly established franchise, know-how may live purely in the founder’s head. Therefore, asking the right questions to obtain this content is key to getting the information necessary to replicate a process faithfully.

What is a business system?

The business system is how the franchisee will meet customer expectations by implementing a systematic approach to analysing, measuring, comparing, and testing all the possibilities of what the customer wants – or doesn’t want. A robust business system, capable of surviving the highs and lows of a business cycle, is at the heart of any high-performing franchise model and should provide the franchisee with a process to fix their operations – e g by performing internal or external audits

A sound business system will help the franchisor and franchisee reduce costs and prevent the erosion of profits. Applying it to safety, hygiene, quality, or getting the job done promptly will give them practical, efficient, and repeatable results It should also provide a clear plan to develop the business and improve top-line performance.

A sound recruitment system, for example, will aim to retain team members for longer and provide suitable training and techniques that enable them to complete their work more efficiently and effectively Procedures should allow the franchise to integrate new team members swiftly and make it easy for them to understand their role within the franchise. Being able to suggest new ideas to improve the business is critical Franchisees should seek to harness their team members’ views and creativity and, in the process, increase their engagement.

How the complete business system works should be rigorously tested and improved. Mistakes will have been made – and corrected – so that the franchisee can benefit from their first day to their last

What are standard operating procedures?

The franchisor’s know-how and business system will be presented in the operations manual as a structured set of Standard

Operating Procedures – commonly known as SOPs. SOPs capture organisational knowledge for all repeatable core processes The franchisor’s objective is to ensure that the franchisee gets a reliable result – the first time, every time. To quote Aristotle: 'We are what we repeatedly do. Excellence, then, is not an act but a habit'.

An SOP needs to be flexible, take what is good and working well, and improve upon it When replicated across a franchisee network, this results in three powerful interdependent pillars of a franchise:

● Quality

● Consistency; and

● Conformity

Quality is everything that adds up to providing complete customer satisfaction so that the franchisee can build on the franchisor’s desire to be the customer’s No.1 Choice – e.g. extensive choice of locations, highly trained personnel, longer opening hours. It is superior in knowledge, selling skills and all-around professionalism, essential in communicating the franchisor’s vision and brand values – it’s their DNA. This will lead to more loyal customers who become great brand advocates. – and ultimately, raving fans for life. A raving fan is more loyal, spends more, and refers more unsolicited leads

Consistency needs to be applied to every process – i.e., the people the franchisee recruits, the training they provide, and the services and products they sell. However, these processes must be sufficiently flexible to cope with potential external economic, political, lega social, competitive, glob technological influence business's smooth runn example of multiple effe pandemic. Regulatory compliance with the franchisor’s requirements and policies form the bedrock of a franchise. The franchisee’s obligations and those of the franchisor will be set out in the franchise agreement

However, it is the job of the standard operating procedures to underpin the terms under which the franchisee will operate with the operational detail necessary for compliance. Non-compliance can be costly when the consequences are financial penalties, court costs, and suspension of services

Every process should be described using logical, easy-to-follow steps as if the content writer followed the procedures in their mind’s eye. These steps will be tracked as needed, revised continuously –and improved This is the recipe for efficiency, growth, and profit so the business can scale forward.

What is the difference between operating and operational?

We often hear people asking for what they want, such as ‘good’, ‘the right size, or ‘ on time’, ‘regularly’ or ‘frequently’. These words mean something to the person using them They also mean something to the person hearing them But will the two meanings be the same? Only the use of operational definitions can guarantee a correct interpretation.

should be observed, measured, or decided W ithout explanations, ambiguity can quickly arise The training seeks to qualify operational definitions and demonstrate that only the highest quality service and product standards are acceptable. When initial training has been completed, the operations manual becomes every franchisee’s terms of reference

However, operational definitions are required to describe sufficiently all the steps necessary to complete a given task to the required quality standards.

An operational process is an organised set of activities or tasks that leads to excellence for a specific service or product Usually, it addresses what, when, why, who, and how questions.

For example: sed set of activities or tasks ic service or product. hy, who, and how questions.

● What is the process?

● When is this required?

● Why is it necessary – i e outcomes, results and payoffs?

● Who is responsible for meeting the franchisor’s minimum operating requirements – franchisee/manager or specific team member role?

● What are the obligations of the franchisor – e g granting approvals?

What will happen if the franchisee doesn’t conform to the specification? How will the process be performed, checked, and measured?

● What tools and resources are available to assist the activities or tasks?

In a food service franchise, the easy option would be to tell the franchisees that cleaning must be done frequently. But this means nothing. The franchisor would need to explain what must be cleaned (kitchen floor, equipment, surfaces), what must be used to clean them (list of approved cleaning solutions), how these solutions should be used, what are the logical steps in carrying out the work, how often cleaning will take place, and at what times.

Operating checklists are convenient as aides-mémoires – e g a store standards checklist to be used by the franchise owner/manager to ensure that all jobs are completed.

My franchise is a relatively simple concept. Surely there can’t be many procedures to document?

Franchisors with simple concepts are often surprised when we draw up a comprehensive blueprint for the contents of their manual from the franchise agreement and other Intellectual Property (IP).

When you identify all the critical processes for setting up the new franchise and the daily, weekly, monthly, quarterly, and annual routines that franchisees and their teams must perform to your quality standards which must be measured, analysed, and improved, the information will be substantial.

Operations manual or knowledge management system?

Over the years, manuals have evolved from the paper-based tome of the 80s and 90s, gathering dust on a shelf, to digital content accessed through a password-protected franchisee portal or cloud-based system.

The original hard copy manual was cumbersome and difficult to read and use Just pages and pages of close type and text with few bullet points, which made reading tiring. No thought had been given to graphic white space. All those headlines in capitals in bold with underlining and copious exclamation marks had put off readers entirely Franchisees found this condescending

Updates were a nightmare. Franchisees were issued with a list and hard copies of the updated sheets to insert in the binder and swap out the out-of-date sheets Many franchisees shoved the new sheets into the front, which fell into a heap and were ignored if the manual was consulted. It became apparent that most franchisees weren’t using their operations manual. But they guessed running the business after initial training, even if they received many customer complaints and recorded a few serious accidents format were huge. It was disheartening to realise that much of this investment was lost

By 2008, clients such as Costa Coffee had ceased to print hard copy versions in favour of putting the many volumes of the Costa System for the Brand Partners’ Operational Manual on password-protected CD-ROMs. These were cheaper to produce and easy to distribute By then, we had developed a tried and tested systematised approach – a three-step methodical approach for creating all operations manuals.

In 2013 we started to explore the use of password-protected cloud-based services such as Dropbox or Microsoft Sharepoint, franchisee portals/intranets, and a Learning Management Systems (LMS) for the AA / BSM Driving School Instructors’ Manual

The AA / BSM Driving School System consists of tried, trusted, proven processes and operational procedures backed by a century of cumulative know-how and support systems The AA / BSM Driving School System is much more than an operating framework It provides franchisees with everything they need to set up, operate, and develop their business as a driving instructor and make them part of the unique AA family. As a small team, the Training Academy did not have the resource or expertise in-house to develop the type of professional operations manual that a premium brand such as theirs demanded.

The time and costs involved in creating and printing the operations manual in this

Our three-step methodical approach for developing all operations manuals breaks down the process into a series of easily manageable tasks. This included creating a structure, acquiring content, and editing the rough draft through to the finished product, and we tailored the process to the AA’s specific requirements One size can never fit all in a franchise.

This meant spending time upfront to develop a logical, clear, and consistent structure. A key role was to steer and mentor in-house content owners through the process and liaise with the IT department to ensure that the design of the operations manual would be compatible with the LMS.

Today, we organise a franchisor’s know-how and business system using a slimmeddown password-protected Core Operating Brand Standards Manual underpinned by a comprehensive knowledge management system with multimedia. This includes text, audio, images, animations, or ‘how to’ instructional videos converted to strategically placed QR (Quick Response) codes which can be read using a smartphone camera

This provides a single resource that can be updated as and when required. It has proven to be a popular format, and the content is more engaging for franchisees and their teams with different learning styles and levels.

Using hyperlinks strategically, we connect the Core Operating Brand Standards Manual to the vast quantity of digital information held across the network, which has been sifted, organised and streamlined. This makes it easier for franchisees to read and logical to update as and when any amendm modifications to the bu to be integrated

Creating or upgrading manual can be challeng consuming. We start wi framework: Introductio Marketing & Promotion, Day-to-Day Operations and Business Development, Growth & Profit

Briefly, this will cover:

● The franchise's history, up-to-date market data, the ‘partnership between franchisor and franchisee', and how to use the knowledge management system. We affirm that the franchisee has made a wise choice and that their business will have the best prospect of success if they follow the franchisor’s business system.

● Minimum Operating Requirements to underpin the franchise agreement and other legal requirements.

● Operational procedures that describe the features – advantages – benefitsoutcomes of doing things ‘The [Brand’s] Way’

● A clear understanding of the difference between standard operating procedures, best practice and guidelines.

● A proven mechanism demonstrates how to measure, analyse, and improve their business – weekly, month-by-month and year-on-year

● Targeted support demonstrates that the franchisee is never alone and that advice and guidance are welcomed in every aspect of running their own business.

● An up-to-date Resource Library that delivers a ‘goldmine’ of valuable tools to

● Comprehensive content that is fully searchable to save their time – and yours

● A simple branded page format, sans serif typeface (font) and sufficient graphic white space to make the content easy to read.

● A seamless updating process that is simple to implement as and when changes need to be made – not three, six or 12 months later

● A consultation process to engage with franchisees on the content at least twice a year.

● The appointment of a franchisee panel when an upgrade or conversion becomes unavoidable.

Regardless of its format, the operations manual must be fit for purpose – i e

● Up-to-date

● Relevant

● Detailed (operational)

● Well written and easy to understand

● Readable (without waffle and jargon)

● Well laid out (a simple page design)

● Easy to navigate (fully searchable)

Access to The Manual will be provided for the duration of the agreement and is for exclusive use by the franchisee/manager and their staff. However, all content remains the sole and exclusive property of the franchisor Password access will be heir franchisees to ge in their preferred edge-sharing ehavioural change. thdrawn immediately when a team ember leaves or the agreement is rminated.

What’s next in the evolution of an operations manual?

Technology can now provide a solution enabling franchisors to facilitate more straightforward operations, manual development, and better engagement objectives Procedures can be digital, accessible, and easier to exchange. Information is more detailed, more effective, and more efficient. Franchisors can now engage with their franchisees to create, share, and update knowledge in their preferred language using a centralised knowledge-sharing platform and a fast way to deliver behavioural change.

Instead of text-heavy content, the operations manual will be developed via a self-serve content creation process that significantly reduces the cost of manual creation

For example:

● All precise, media-rich, step-by-step ‘how to’ instructions can be created on any mobile phone.

● This encourages the capture of mandatory procedures and best practice quickly and simply

● The self-serve content creation process delivers instant knowledge about how to deliver franchise standards day-to-day –at the point of need.

● Instant multi-lingual language capability is in-built for those with franchise operations in non-English speaking countries or with n team members.

● It includes text-toread instructions a reading difficulties

● It enables franchiso works and keep on

● Continuous impro because informati everywhere instan

● Customers typically see a 10 x Return on Investment, with bottom line revenues increasing across all sectors.

● It enables franchisors to better protect and uphold brand values by providing clear instructions on ‘how to’ do ‘this’ at the point of need.

● All data is secure, and only those with password access can see instructions.

● It facilitates audit and accountability – so that franchisors can track who has watched what, where, and when

We live in a YouTube, Instagram, Tik Tok society. Attention spans have become shorter. If we want to know how to do anything, we search the internet for the answer and find what we want immediately.

As people have less time and everything becomes more digital, changes faster, and becomes more complex, franchisors need to employ quicker, leaner, knowledgesharing solutions. Already this is happening in manufacturing. The revolution in operations, manual development, and franchising, is imminent n