Top Franchises 2014

To compile the data for this report, we surveyed close to 26,000 franchisees, representing more than 350 brands and 78,000 franchise units/locations. Our survey is open to all North America-based franchise companies at no cost.

We email our survey to all active franchisees within a system. Franchisees answer 33 bench¬mark questions ranking their franchise system in the areas of financial opportunity, training and support, leadership, operations and product development, core values (e.g., honesty and integrity of franchisor), general satisfaction, and the franchisee community. An additional 16 questions ask franchisees about their market area, demographics, business lifestyle, overall enjoyment running their franchise, and role in the franchisee community. From this data, we identify our list of Top Franchises, which includes companies with above average satisfaction among the companies we surveyed.

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WHY SATISFACTION MATTERS

By all accounts, 2014 is a great time to buy a franchise. Many franchise companies are coming off of their best year since 2007, franchise operators are seeing increased profitability, and many economic experts have forecasted a much-improved economy. But, no matter how rosy things look for franchising as a whole, nothing guarantees a franchisee or a franchise concept will be successful. Prospective franchisees must thoroughly research every opportunity they are considering to determine if the concept is viable and the right fit for them.

One of the best ways to know if a franchise opportunity is really as good as it appears is to look at the company’s franchisee satisfaction data. Not all brands survey their franchisees, but those who do offer a wealth of information on the system’s leadership, culture, training and support, financial outlook, and franchisee community.

A CLOSER LOOK AT THE FRANCHISEE SATISFACTION AWARD-WINNERS

The 200 companies we feature in this report come in all different sizes, investment levels, and industries but have one thing in common high franchisee satisfaction. These are the brands that exceeded our benchmark for satisfaction to make our annual list of award-winning companies.

Before we dig into the specific survey findings related to franchisee satisfaction, it’s worth discussing some of the common themes for 2014 that emerged from our research.

WHAT’S HOT?

2013 brought an explosion of new brands and concepts to the franchising world, and there’s no doubt that trend will continue in 2014. But the profitability and long-term staying power of these companies is yet to be deter¬mined. “Hot” doesn’t always translate into satisfied, profitable franchise owners. For example, there has been an explosion of brands in the frozen yogurt segment, and yet only two brands (Yogurtland and Zinga!) made our list this year.

Senior care, child services and education, and food are all popular industries for 2014. In the past year, we’ve also seen an increase in the popularity of franchise concepts selling real estate (Sotheby’s International Realty) and offering home services (CertaPro Painters).

Whatever the concept—traditional or out of the box—it’s important to feel comfortable with the franchise’s ability to survive tough times and stand out from competitors.

One concept that stands out on our list as being both unique and having high satisfaction is Pinot’s Palette, a Houston-based “sip and paint” franchise. Pinot’s debuted on our list in 2013 and has seen an explosion of competitors in the past year as the sip and paint industry has taken off. President Charles Willis says they are constantly expanding and improving their business offerings to stay on top, and ahead of their competition, in the industry. They’ve recently added a children’s program (“Little Brushes”), a mobile offering (so franchisees can take the concept into existing bars and restaurants for special events), and a scotch and beer menu to increase male clientele.

Even if you’re considering a more traditional franchise concept, you need to look at how the corporate office helps franchisees during rough times. For example, Weed Man, a lawn care business, works with franchisees to ensure they are prepared for all the outside factors impacting turf—including long winters, dry seasons, and unexpected storms.

Men in Kilts, another top company on our list, is a window-washing franchise with a twist—technicians in kilts. The service approach may be cute, but CEO Tressa Wood says they work very hard to ensure the business behind it is serious.

“At some point, you have to get over the kilts and focus on differentiating the business. Our service goes far beyond the gimmick,” Wood said.

From an investment standpoint, lower-cost concepts (those requiring an average initial investment of under $100K) like Auto Appraisal Network and FocalPoint Coaching are always well-represented in our list of award-winners, but we also see very high satisfaction among more expensive opportunities, such as our food brands (Culver’s and East Coast Wings & Grill) and concepts like The Goddard School, which operates early education centers.

Generally speaking, we find lower-cost concepts tend to score a little better on the “quality of life” areas of our survey, and high-cost investments do a little better in the financial/profitability areas. Of course, many low-cost opportunities also have the potential for a high return on investment, and many high-cost concepts offer a work-life balance, but this is a generalization based on the thousands of franchisees we speak with each year.

Some franchisors of traditionally higher-priced concepts have expanded their model to include lower-priced options. MaidPro introduced a lower-cost option— the “Select Model” for candidates with less than $50,000 to invest in a franchise.

“We’ve seen that lowering the minimum investment and offering additional financing has really helped potential franchisees start a MaidPro, when in the past they would not have been able to do so,” said CEO Mark Kushinsky.

East Coast Wings & Grill recently expanded its offerings to include QSR opportunities for franchisees who already own a flagship restaurant. Existing East Coast franchisees can open a QSR location for $325,000 (compared to around $650,000 for full service restaurant). CEO Sam Ballas told us they began researching and prototyping this model a few years ago in an effort to offer less expensive multi-unit opportunities for franchisees and to offset a projected real estate shortage.

“We’ve been closely studying real estate in the past years and see a real crunch coming in 2014 and 2015,” said CEO Sam Ballas. “We’re just not going to be able to find the 4,000 foot space that the food sector is going to need.”

On the flip side, pest extermination franchise Truly Nolen actually increased its cost of entry to ensure new franchisees are properly capitalized for quick success.

“We found that people who have the money to hire an extra salesperson right out of the gate perform better,” said Scott Nolen of Truly Nolen. “We also insist franchisees have newer vehicles because old ones cause distractions and service breakdowns, which affects profit-ability in the long run.”

Although the tightness of the lending landscape has leveled off, heightened lender expectations are here to stay. Along these lines, Weed Man recently launched an internal financing program to help qualified franchisees get into the system.

“When we were talking to candidates, we’d get them all the way down in the awarding process and we thought they were a good fit, and they’d come back and say we couldn’t get the money from the bank. These were really strong candidates,” said Jennifer Lemcke, Weed Man’s chief operating officer.

Similarly, brands like FirstLight HomeCare and Marco’s Pizza have added staff specifically to help franchise candidates navigate the lending waters.

“I have one person on the staff whose sole job is helping franchisees obtain financing. In a fast-growth environment like we’re in, we need to do everything we can to help that process along,” said Ken Switzer, vice president and CFO of Marco’s.

It’s worth noting that brands with higher satisfaction and a strong history of performance have a much easier time getting financing for prospective franchisees.

HAPPY DAYS ARE HERE AGAIN

Numerous brands tell us 2013 was their best year ever—for franchise development, profitability, and for franchisee performance. Brands like Men in Kilts and Our Town America have aggressively focused on franchise sales in the past year, and franchisees, more than ever, are looking to grow their existing businesses or expand into other territories (see more on multi-unit ownership on page 9).

This renewed focus on growth by the franchisor can impact the franchisee both positively and negatively, depending on the brand, and it’s something prospective franchisees should consider in their due diligence. Is the franchise focused on smart growth or just fast growth? How will the brand’s growth aspirations affect its culture, franchisee community, fees, and royalties? Is the parent company reinvesting some of its profits back into the business e.g., ramping up operations and field support as they grow? (Looking at the franchisor’s financials contained in their FDD will shed some light on this question.)

Along with the increased focus on growth, franchisors have increased their emphasis on marketing and advertising to consumers. Some brands that slowed down their advertising to reduce their franchisees’ expenses have re-upped the required marketing contribution for franchisees, taking it back to where it was pre-2008—or even higher. Although increased marketing costs can cause dissatisfaction among franchisees, when done right, it can drive increased revenues at the unit level. A brand that charges franchisees less for marketing isn’t necessarily a better brand for franchisees—nor is a brand that charges more. Potential franchisees need to carefully look at what a brand offers as part of its marketing program (Do they provide local support in addition to national? If not, do they give you guidelines for local marketing strategies and spending? Do they offer details of where the ad fund money is being spent?) and what current franchisees say about a brand’s marketing support.

GOVERNMENTAL INFLUENCE

Government regulation at both state and federal levels can have a significant impact on franchisors and franchisees, so it’s an important issue to consider as you research a franchise. In 2013, several states passed franchise-specific laws aimed at protecting franchisees (at least on face value). And federal issues—like Obama-care and the government shutdown—had far-reaching, long-term effects on franchisors and franchisees.

2014 will undoubtedly bring more change, regulations, and challenges to both franchisors and franchisees. The question for prospective franchisees is how will these changes affect your business?

The Affordable Care Act, for example, can make a significant impact on franchise operators (and prospective franchisees) who employ a lot of full-time equivalents because of the costs related to providing healthcare coverage.

Even if the latest round of regulations doesn’t affect a particular franchise brand, prospective franchisees need to consider regulatory activity as part of their decision to buy a franchise. What’s going on in the government? Where are the White House’s priorities (e.g., education, defense, increasing minimum wage) and how will they affect business?

For some industries, you may want to consider how involved the franchisor is in government relations. Industries like senior care, child care, and food are more exposed to government regulations than others. In those industries that are heavily impacted by the government, does the franchisor provide additional support to franchisees? For example, at Homewatch CareGivers, there’s one person on staff (who Reynolds affectionately calls the “Master of Gloom and Doom”) who focuses on all things rules and regulations.

TRANSPARENCY

Transparency is a key to franchisee satisfaction. In our experience, the more a franchisor shares, the stronger the brand and the more engaged the franchisee community. Transparency starts from Day One of your research into a brand— what do they offer you upfront? What data do they provide to assist you in your research? And then what do they do once you’re a franchisee? What financial information do they share with franchisees?

For prospective franchisees, transparency comes down to having clear expectations. This may start with Item 19 in the franchisor’s Franchise Disclosure Document, but runs into other areas: Does the franchisor share its franchisee satisfaction results—both good and bad? Does the franchisor connect you with current and former franchisees (many of our top brands require candidates to talk to a set number of franchisees before they can move forward in the sales process)?

“This isn’t a sale; it’s a marriage. We’re really trying very hard to carefully disclose and have a great quality conversation about what we’re offering,” said Nolen of Truly Nolen.

Homewatch CareGivers provides candidates with a list of people who’ve left the franchise system. “We point those people out in our sales process because we want to be as clear as possible with candidates,” Reynolds said.

You’ll also want to ask questions about their transparency once you become a franchisee. What do they share about operations? Are their fees transparent? Is the performance of other franchisees shared with all?

Homewatch CareGivers shares its franchisee performance metrics with franchisees quarterly. Pinot’s Palette does a monthly franchisee performance dashboard.

“It’s good for new franchisees to see how other franchisees get over their first-year challenges. It motivates people to get up and going,” said Willis of Pinot’s Palette. They also facilitate conference calls between franchisees and encourage them to share best practices. Weed Man also shares franchisee data and gives franchisees a copy of its national ad fund budget so franchisees can see exactly where their marketing contribution goes.

MULTI-UNIT OWNERSHIP

Multi-unit ownership has always been common among food franchisees, but lately we’ve seen an increased interest in multi-unit businesses by both franchisees and franchisors in all industries.

For franchisors, multi-unit ownership means more units with fewer franchisees to support. For franchisees, owning more than one franchise location (or multiple territories) can be very profitable because of the cost advantages and efficiencies that come with size and scale.

“Your profitability is better and your risk of having failure is lower because you are able to spread that risk across several locations,” said Jennifer Durham, vice president of franchise development for Checkers & Rally’s.

Investing in multiple franchise units requires even more due diligence than investing in just one (see sidebar below). Franchisees make a bigger investment, and, as a result, take a bigger risk than single-unit operators. Potential franchisees who want to own multiple units need to look closely at the franchise system and whether it’s set up for multi-unit ownership. Does the franchise have the resources and systems in place to actually support multi-unit operators? Are the brand’s business plan, marketing, systems, corporate management, and culture set up in a way that supports managing stores from afar (or at least not from the premises on a daily basis)?

Even if you’re not interested in running more than one unit today, you may be in the future, so it’s worth considering a brand’s ability to support you as you grow.

FOCUS ON PROFITABILITY

Unit-level profitability is something that is obviously important to franchisees but wasn’t always top of mind for franchisors—at least until the recession hit. Since then, franchisors have had to focus more on what their franchi¬sees are making (and how they could reduce their costs) just to keep them in business. In 2014, unit-level performance is a high priority for most of our top franchisors.

“We made a very concerted effort at the end of 2008—primarily for defensive measures— to use our support staff to approach our franchisees not only through annual planning but also through monthly trends and quarterly budget reviews. That has helped profitability at the unit level dramatically,” said Rich Wilson, president and CEO of CertaPro Painters.

Again, this is where an Item 19 may come in to give you a sense of how other franchisees are performing—but you’ll also want to ask existing franchisees how quickly the business will break even (see more on this in “What’s in an Item 19?) as well as how the franchisor has helped them reduce costs, increase revenues, and improve profitability. For businesses that are seasonal, these questions are even more important—how does the franchise brand ensure that franchisees are making enough money even when they’re not making as much money?

“We’ve always, always, always been focused on unit-level profitability,” said Weed Man’s Lemcke. “Because we grew up in lawn care, we are very much in tune with where you need to have your EBIDTA.”

INTERNATIONAL GROWTH

We’ve seen an explosion of international growth for U.S. franchises in the past few years, and not just among huge brands that have sold out of territories in the U.S. We’re even seeing smaller brands—like Wingstop and Fatburger—go international. Alternately, we’ve seen international brands (like South Korean brand Red Mango) come to the U.S.

The challenge for franchisors is how to support their franchisees when they’re based all over the world. Most rely on master franchisor agreements, but Sotheby’s International Realty established three international servicing hubs—in London, Miami (for Latin America), and Hong Kong—to oversee their international franchisees.

If you’re considering a franchise in the U.S. or Canada, their international efforts may not affect you but you may benefit from the increased visibility an international presence brings to your business’s brand (as well as the potential for a higher valuation long-term when you sell). Either way, you’ll want to know exactly where the corporate office is based and how they ensure franchisees are well-supported, whether they’re located in another town, another state, across the country, or in another country all together.

FRANCHISEE SATISFACTION

The franchise brands comprising our top franchises list are those companies whose franchisee satisfaction is above our benchmark score, which is an average of all the brands we survey each year. We’ve seen franchisee satisfaction increase in the past few years as franchisors pay more attention to unit-level economics, and the business outlook continues to improve. Many of the companies on our list make their full satisfaction reports available to prospective franchisees. You should ask for these reports, as they contain a wealth of detailed information about each section of our survey (Training & Support, Leadership, Franchisee Community, Financial Opportunity, and Core Values. In general, the areas where we tend to see lower satisfaction are marketing, financial performance, and communication.

We often see lower satisfaction in marketing even among our top brands. (It’s important to note that satisfaction in the area of marketing is 15% higher at our Top Franchises than satisfaction across all brands.) Common complaints related to marketing are that the franchise brand doesn’t do enough marketing at the local level and marketing fees aren’t justifiable (at least in the eyes of the franchisee).

When you’re researching a franchise, the ins and outs of the marketing program might seem a long way off, but you need to make sure you’re going into it with your eyes open. How does the franchisor approach marketing and does it meet your expectations? How is the marketing budget used (and do they share that budget with franchisees)? What do local and national efforts look like? Do they provide local support and training or do they leave that up to the franchisees (sometimes, it makes sense to leave local efforts up to the franchisee but you should know this going in). Are franchisees involved in the process of deciding how ad dollars are spent? (Some brands have franchisee ad boards that are very involved in budget allocation; other franchisors don’t allow franchisee input.)

You’ll also want to look at the franchise brand’s long-term support and training. We often see franchisees at the 3- to 5-year mark becoming less satisfied or less engaged. When looking at a particular franchise concept, potential franchisees should care¬fully research what they’ll be getting out of the brand not just at start-up but three, five, and ten years out. Be sure to speak with current franchisees who’ve been operators for more than five years. Ask them what the long-term, ongoing support is like and what they get out of their royalties.

Perhaps the biggest area affecting satisfaction is communication, which is always a big topic of discussion in our survey. As a prospective franchisee, you should carefully research a franchisor’s communication (methods, frequency, two-way communication, level of franchisee input, etc.). You may get a sense of a system’s communication strengths and weaknesses as you conduct your research— are they quick to respond to your questions, do they provide lots of materials online and in-person? Remember, however, that the person you’re communicating with is most likely a salesperson who has a stake in the game and who won’t be your point of contact once you’re a franchisee. Ask for examples of how the corporate office communicates with franchisees on an ongoing basis, and talk to current franchisees about the accessibility of the executive team and whether they listen as much as talk.

Last but not least, satisfaction in the area of Financial Opportunity took a big dip during the recession but continues to improve. While many franchisees may not be completely satisfied with their business’s current financial performance, 74% of franchisees have a positive outlook for the long-term growth opportunity of their franchise business.

Here again, satisfaction has a lot to do with having realistic expectations. As discussed earlier, be sure you understand the profitability model of your business. Some of our top brands require prospective franchisees to devise a detailed business plan as part of the due diligence process. This is as much to ensure new franchisees have realistic expectations as it is to show their plans for the business.

Take a close look at the Item 19, if available, and be sure it tells the true story (again, see above for more info). Ask current and former franchisees what the ramp up is like, how long it took them to earn a salary, how they rate their franchisor’s financial opportunity, and whether your financial expectations are realistic.

WHAT IT TAKES TO BE A SUCCESSFUL FRANCHISEE

CEOs at our top franchise brands tell us they are being more particular than ever about who they welcome as franchisees into their systems.

“We have very stringent criteria to become part of this network. You’re only as strong as your weakest link,” said Sotheby’s International Realty CEO and president Philip White.

The skill sets and attributes of successful franchisees vary widely and may depend on the type of business and/or the industry. Wild Birds Unlimited franchisees, for example, need specific bird-related experience (or passion) to be successful whereas CertaPro franchisees don’t necessarily need to know how to paint. Some sectors, like child services or senior care, are more people-driven and therefore require more in the way of empathy and interpersonal skills. Other sectors, like food, may require some knowledge and experience in the industry to succeed. (Brands like Culver’s and East Coast Wings also require prospective franchisees [and sometimes spouses!] to work in their restaurants for a number of days as part of their research journey.)

Regardless of the sector or business model, there are certain necessary skills and attributes that carry across all of franchising. Franchise brands across the board tell us they look for people with strong people management skills, as well as networking, marketing, and operational expertise.

According to Weed Man’s Lemcke, a common trait of their top-performing franchisees is passion—for people, selling the concept, providing good customer service, and treating people well.

“You can see the passion in their eyes,” Lemcke explains. “They’re sponge-like. They respect you for what you’ve done, and they want to learn to be better from other people.”

It should go without saying that if you’re buying into a franchise, you need to be passionate about following the franchise model, yet many franchisees tell us their biggest mistake in their first year of business was not following the system.

Older/bigger franchise systems are more likely to have a very clear, ingrained process for all aspects of running the business, so if you are someone who wants more involvement in the set-up and design of your business, you may want to consider a newer, smaller brand that encourages creative thinking and individuality.

“We hang our hat on innovation,” said Pinot’s Palette president Willis. “We have so many smart people coming into our system— people from corporate America and Fortune 500 companies, and we welcome their input.”

Even with the most flexible brands, however, it’s important that prospective franchisees know franchising really is about following a system.

“We’re a really flexible franchise, and there are no two owners of our brand that have identical business plans. Our owners have great ideas to improve the business, most of which we implement, but it’s important to their success that they are able follow our proven franchise systems as well,” said MaidPro’s Kushinsky.

Last but perhaps most important, prospective franchisees must have enough money—not just to buy into the franchise but to finance the start-up and the early months of running the franchise. Some concepts have a longer runway than others, meaning it can take several years for a store to sustain a healthy and stable cash flow.

“No opening is ever certain,” said Firehouse Subs CEO Don Fox. “It’s important franchisees have their eyes wide open. That’s one of the reasons we scrutinize personal finances—what do you really need to live on? Potential franchisees need to understand it may take lots of frugality and they may need to pull the reins in a little bit in the beginning.”

PROS & CONS OF FRANCHISING

Pros

There are many advantages to buying a franchise versus opening your own business. Franchisees get an established brand, a pre-tested system that works, and the expertise, training, and support of an experienced corporate office.

“There’s a huge amount of knowledge that’s processed and organized so you don’t have to go out and discover it yourself. This saves you time as well as money,” said Nolen of Truly Nolen.

Many franchisees appreciate the “plug and play” nature of franchising—franchisors provide the technology platforms and materials operators need to handle tasks like invoicing, scheduling, marketing, and customer service. Franchisees tell us that purchasing a franchise enables them to stay out some of the more tedious parts of setting up a business so they can focus more on actually running the business.

Another huge advantage to franchising is the franchisee community. In franchise systems with a strong and active franchisee community, franchisees reap the benefits of learning from each other’s mistakes and successes. Running any business can, at times, be a lonely endeavor, but in franchising, you are never alone.

“You have ongoing relationships with a group of people who are cohorts, not competitors,” Nolen said.

“One of the big benefits of being a part of a franchise system is that there’s someone else staying up nights, worrying for you,” added Weed Man’s Lemcke.

Cons

Many of the cons of operating a franchise are the same as running a non-franchise business. It’s a lot of work, especially in the beginning; it can take a while to establish a strong customer base and a predictable salary; and there’s no guarantee a business will be a success.

Some people turn to franchising thinking it will be easy. In many ways, it is easier than starting an independent business because of the systems and processes the franchisor provides, but starting a franchise is not easy.

“Running a business is not as easy as you think,” said CertaPro franchisee Steve Carey. “If you think it’s an easy cash gainer, odds are you don’t fully understand the business. You need basic fundamentals, and you need to know the demographics of your area, your competitors … and then come up with a strategy that makes sense for you personally and your family.”

As discussed earlier, being a franchisee requires a willingness to follow the franchise system’s proven methods, which doesn’t always come easy to everybody.

“If you’re a ‘my way or the highway’ type of person, a franchise is not going to work for you,” said MaidPro’s Kushinsky. “Like any good partnership, franchising involves some give and take.”

“Once you follow the system long enough, then you can innovate,” added Nolen. “I’m not saying don’t be innovative, but wait and make sure you know what the context is to make it most effective.”

Perhaps the biggest “con” to consider as you look at different franchise systems is that in a lot of industries, the corporate brand can define you. You’re no longer accountable for just your actions as a business owner so you want to find a franchise brand that has proven ethics and values similar to yours and a culture where you are comfortable. You also want to find a franchisor that is looking carefully at you—this ensures they are protecting the brand with each person they bring in. Ultimately, you want to know the corporate office will support you and look out for your best interests today and five years from today.

SUMMARY

2014 is a great year to buy a franchise—but it all comes down to being the right franchisee in the right system for you. Potential franchisees need to consider many factors as they narrow down their franchise search. Is the system set up to grow? How important are unit-level economics to the corporate office? Does the brand have a strong relationship with customers, lenders, AND franchisees? How will government regulation affect the industry in the future (and will the franchise system work to ease those effects)? Is transparency important to the brand (and do you see evidence in this in your research and discussions with franchisees)?

The 200 award-winning companies in this report provide a great starting point for someone looking to invest in a franchise opportunity. Nothing guarantees a franchise system will be the perfect fit, but talking to franchisees and looking at a brand’s franchisee satisfaction data is a great way to learn the full story about a brand.

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