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Top Challenges in Franchisee-Franchisor Relationships and How to Overcome Them

By Evan Hackel

The relationship between franchise companies (franchisors) and franchisees can be complex and fraught with challenges. Here are some of the biggest problems that I have seen arise, along with suggested strategies for overcoming them:

Lack of Communication

We have all heard franchisees say, “The franchisor never really talks to me, they only contact me if there is something I am required to do.” That’s a common complaint. Another one is, “They talked to me a lot when they were trying to sell me my franchise, but not anymore.”

Those quotes show that communication can often break down, leading to misunderstandings and frustration. The solutions are relatively simple, but you have to do them . . .

  • Have someone from headquarters visit and spend time at your locations regularly, once a month if possible.
  • Don’t only communicate when something is wrong, also share the news when one of your franchisees does something notably good, or when you have other good news to share.
  • Make your annual franchise conference an occasion for franchisees to speak openly with you. Discuss not only operational issues, but the big picture and your vision for the future.
  • Establish franchise councils where franchisees can make suggestions to you and share what they have learned.
  • Provide ongoing excellent training. People don’t always think of training as communication, but it is. In fact, it is one of the most powerful forms of communication ever invented.

Costs and Royalties

Franchisees may feel burdened by the ongoing costs and royalties they must pay to the franchisor. These fees can add up and become significant financial strain. Costs and royalties are part of the franchise picture. But there are ways to prevent them from causing frictions with your owners .  . .

  • Spell out costs before franchisees buy your franchise, so you eliminate surprises.
  • Apply the “WIIFM” (“What’s In It For Me”) approach, in which you carefully discuss exactly what your franchisees receive for the fees they pay.
  • Make it clear that fees are non-negotiable. There are issues you want to negotiate with your franchisees. Generally, fees are not one of them because without them, your franchise could cease to exist.

Compliance Issues

Franchisees are required to adhere to the franchisor’s established procedures and standards. However, this can sometimes lead to conflicts if franchisees feel these standards are too rigid or not suited to their specific market. Here are some solutions . . .

  • Establish a variance committee where franchisees can ask for approval to modify or set aside your rules if they feel they are not fair. The variance committee should be made up of other franchisees. If 60% of them agree to allow the applicant to modify a rule, that request for a variance is approved.
  • Behind closed doors, discuss which of your rules and requirements are negotiable and which are not. This is a crucial step in deciding which rules are flexible. As a result, your communications with franchisees become uniform and clear.

Lack of Support

Franchisees may feel that they are not receiving adequate support, guidance, or assistance from the franchisor. This can lead to feelings of isolation and frustration. But this problem too can be solved with some simple steps . . .

  • Keep lines of communication open so that your franchisees can ask questions or request support. One example? When franchisees call, answer the phone, and respond to their needs as quickly as you can.
  • Provide ongoing training. Nothing else works so well to show your franchisees that you are behind them every step of the way.
  • Have a great annual conference that your franchisees really love to attend. Make it fun, educational, and compelling. At it, recognize and reward top-performing franchisees. And follow up afterwards with ongoing, encouraging communications.
  • Don’t wait for franchisees to ask you for help. Be proactive by calling regularly to ask, “How is it going . . . where can we step in to help?”

Resistance to Change

Franchisees sometimes resist changes proposed by the franchisor, especially if they feel these changes are not in their best interest or are too costly to implement. The change could be the introduction or discontinuation of a product, a new way to accept payment from customers, replacing one vendor with another . . . the list goes on and on. Yet there are ways to minimize or eliminate conflict . . .

  • Minimize frustrations by explaining in detail what the change will be and how it will be implemented.
  • Create a special hotline or another line of communication to answer questions and provide support.
  • Clearly explain the reason behind the change.
  • Again, Apply the “WIIFM” (“What’s In It For Me”) approach by carefully explaining exactly how your franchisees will benefit from the change. Example: “Franchisees who have used this new marketing program report that sales have increased 15%. It will work for you too.”
  • Provide training that helps franchisees learn and use what is new. In this article, I know I keep returning to the importance of training. But training is the most important tool for reducing frictions.

Financial Disputes

I have saved the greatest challenge – financial disputes – for last. They can be the most difficult conflicts to address. There is no doubt that disagreements over financial matters, such as marketing fees, management fees, and other costs, can create tension and conflict. Yet again, there are solutions . . .

  • Include clear financial statements in your franchise agreement and in your franchise operations manual. Go over all costs and fees carefully as part of the sales process and have new owners sign “on the bottom line” to be sure they understand costs.
  • Have a clear process in place for dealing with financial disputes. You could have a committee in headquarters to deal with them or designate one executive to oversee them.
  • Remember, not all financial disputes are the same. Sometimes a franchise doesn’t want to pay an annual royalty fee. Sometimes he or she cannot pay because of financial difficulties. Those situations are not the same. Establish different protocols and ways of supporting – not disciplining – your franchisees.

In Summary . . .  

Understanding these common issues can help both franchisors and franchisees work towards building a more harmonious and productive relationship.

Evan Hackel
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