Siebert on Franchising

With the proper location and the right management, a single club can do quite well, maintains Mark Siebert, president of iFranchise, a Chicago-based franchise consulting group. However, when competition becomes tighter, the power of name recognition may be needed to give the club an extra edge. One way to get that recognition instantly is to franchise or license a brand name.

Is it worth it for your club to purchase a brand? To answer that question, take a look at your market. If you don't have much competition, the brand name may not have much effect on your business-so there's no point in paying a licensing/franchising fee. "It would make sense if the incremental revenue was greater than the incremental cost," Siebert says.

If you do decide to go with a brand name, consider doing a survey to see which name has the most appeal to members and prospects. In some cases, you may discover that several names carry the same weight. When that occurs, you should look beyond the name to see what support the licensor/franchisor provides (e.g., advertising, management materials, etc.).

"It's more than the name you are buying," Siebert says. "You have to assess the entire package of services."

Franchising/licensing can also aid the in-between businesses: clubs that are larger than a single unit, yet not large enough to compete with the critical mass of major chains. However, the benefit does not come from buying a brand name but, rather, from selling one.

According to Siebert, clubs in the middle of the food chain are good candidates for becoming franchisors or licensors. This allows them to grow and develop brand recognition without a significant capital investment.

Still, this isn't for every club. These eight criteria will help you decide if your business is franchisable, taken with permission from www.ifranchise.net. You can also use this list to judge franchisors with which you would like to do business.

Credibility: Credibility can be reflected in a number of ways: organization size, years in operation, publicity, strength of management, etc.

Differentiation: This can come in the form of a differentiated product or service, reduced investment, different target markets, etc.

Transferability of knowledge: If your business is so complex that it cannot be taught to a franchisee in three months, you will have difficulty.

Adaptability:Some concepts do not adapt well over large geographic areas because of regional variations. Others are constrained by laws. Some work only because of the unique abilities of the individual behind the concept. Finally, some concepts are successful based on years of perseverance.

Refined and successful prototype operations: A refined prototype is necessary to demonstrate that the system is proved, and is instrumental in the training of franchisees. The prototype also acts as a testing ground.

Documented systems:A franchisor will need to document its policies, procedures, systems, etc., in a comprehensive and user-friendly operations manual and/or computer-based training module.

Affordability: Affordability merely reflects a prospect's ability to pay for the franchise in question.

Return on Investment (ROI): A franchised business must allow enough profit after a royalty for the franchisee to earn an adequate return on his investment. iFranchise looks for the franchisee to achieve a ROI of at least 20 percent by the third year of operations.