Franchisor Tips: How to Deal With Underperforming Franchisees

Lily Sweeney, writer

Published at 18/05/2021, Updated on 04/05/2022 , Reading time: 5 min

Franchisor Tips: How to Deal With Underperforming Franchisees — Photo © Unsuitable_franchisees.jpg

Effectively dealing with franchisee underperformance can be difficult at every stage of the franchising process. But, as a franchisor, this is one of your primary responsibilities, and poor performance can quickly impact your brand reputation. These franchisor tips will help you perfect your performance management skills.

The franchisor-franchisee relationship is central to the success of a franchise business, and both parties must cooperate effectively in order to thrive. If you’re wondering what happens when you recruit the wrong franchisee, or a franchisee begins to underperform in their role, the answer is likely to include professional or financial damage.

What are the different stages of the franchisor-franchisee relationship?

When entering a franchise agreement, both parties should have a clear understanding of one another. In order to achieve success, goals should be set clearly, and early on. As a franchisor, you’ll be responsible for communicating the mission, goals and vision of your business to the franchisee. In the franchisor-franchisee relationship, there are four different stages:

1. The recruitment stage

The recruitment stage is arguably the most crucial, and honest communication is extremely important between parties, even as both try their best to impress. This is the point at which a franchisor should set expectations, and a shared desire for success and profitability should be communicated.

2. The growth stage

This stage usually spans the first three years in business together, including signing the agreement, opening the franchise, and getting things off the ground. Once a franchise agreement has been signed, both parties will be responsible for following the terms laid out within it. The franchisor should ensure that training and ongoing support is readily available to the franchisee, including via making regular franchisor visits.

3. The maturity stage

By this point, which will generally be several years in, the franchisor and franchisee should know what to expect from one another. Things should feel comfortable and reliable. As a franchisor, take care that your support level doesn’t drop during the maturity stage. A franchisee who feels abandoned can soon become an underperforming franchisee.

4. The final stage

In the final stage, you’ll reach the moment at which you decide whether to renew your contract together or go your separate ways. The franchise agreement favours franchisors at this point, and they have more recourse for termination than the franchisee.

Examples of franchisee underperformance

While running a franchise within a larger network can be stressful, and might demand a lot from a franchisee, underperformance is unusual. With plenty of training and support on hand, most franchisees are able to find success running their businesses. In fact, 93% of franchisees claimed profitability in 2018 [British Franchising Association].

Here are the three telltale signs which mark out an unsuitable franchisee:

A poor attitude - Any sign of a poor attitude could spell trouble for the future of your business. This attitude might manifest itself through a lack of passion, a lack of enthusiasm, or a lack of engagement with the franchise and/or the franchisor. A franchisee who’s failing to work hard and take care in what they do is a franchisee who will be limiting their franchise location’s potential for success.
Lack of proficiency - Being proficient in the role is key, especially when it comes to business operations. Though hiccups when a franchisee is first starting out are completely normal, this is something that most franchisees will figure out fairly quickly. Monitor franchisee performance on a regular basis to pick up on any proficiency issues early on.
Lack of planning - A lack of planning shows that the franchisee is not focusing on the potential outcomes of their business. Although they might shown great planning skills at first, you need to ensure that they are still passionate about the future, and ready to adapt if they need to.

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Five franchisor tips for dealing with an underperforming franchisee

Struggling franchisees have a right to receive support, advice and patience, and these are things that any franchisor should provide. If your franchisee is underperforming, ask yourself why that might be. Is it down to a lack of effort? Or is it the result of a lack of knowledge, brought about by insufficient training? Do your due diligence as a franchisor.

It can be tempting to write off your underperforming franchisees and focus your efforts on your superstars. But before you dismiss those underperformers, think about what types of support [...] you could provide that could turn your subpar franchisees into your next success story. —Franchise Business Review

Here are five tips which will help you improve franchisee performance:

1. Implement solid recruitment strategies

If your recruitment process is up to scratch, you’re unlikely to sign a franchise agreement with an unsuitable franchisee. Before you start interviewing, ensure that you have processes in place to guarantee the person you’re going into business with is 100% right for the role.

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2. Ask for a regularly updated business plan

Ask your franchisee to produce a business plan, and request that they make regular updates to this plan. Once shared with you, you can use this business plan to monitor your franchisees’ progress and achievements against their expectations of their own progress and achievements.

3. Set achievable, realistic goals

Think carefully about the goals that you set for your franchisee. Ensure that they are achievable, and not asking more than can reasonably be expected of a franchisee. As soon as you’ve finalised these goals, put them to your franchisee and set out a realistic timeline for their completion.

4. Make time for regular meetings with your franchisees

Communication is the key to success. Make sure you’re checking in regularly with your franchisee. Meeting in person will give them the opportunity to share any of their concerns or questions.

5. Provide ample training and support opportunities

Always be on the lookout for more training and support opportunities to provide your franchisees (and their employees) with. Learning is a lifelong process, and a better-informed franchisee is a better-performing franchisee.

How to offboard an unsuitable franchisee

When it comes to offboarding an underperforming franchisee, you have two options:

Wait until the contract comes to term, and gracefully end the franchise agreement by not renewing it.
Terminate the franchise agreement early.

The second option will only be viable if the franchisee is found to be in breach of contract. To be in breach of the contract, the franchisee must have committed a crime, declared insolvency, or failed to make required payments/obtain certain licenses/adhere to business standards laid out by the franchisor within the franchise agreement.

Always turn to contract termination as your last resort

As a franchisor, you’re responsible for the satisfaction and wellbeing of your franchisees, and you should do everything in your power to support, retrain and negotiate before turning to the option of a contract termination. For more franchisor tips on guiding and assisting your franchisees, browse Point Franchise’s wide range of articles.