Considering this important characteristic of a franchise system is an important step in any due diligence process because it indicates scalability and franchisee satisfaction.
Existing franchisee growth is a critical area to dig into as part of the due diligence process when evaluating a franchise opportunity. Growth is a sign of a robust franchise system. When existing franchisees are expanding and buying multiple locations it is evidence of a healthy local market and franchisees who are happy with their investment decisions. It is so indicative of a solid investment that in a recent article, Pete Lindsey, Vice President of Franchising for Sport Clips Haircuts , listed it as one of the five things everyone should consider before signing any franchise agreement.
According to Dave Wells, Senior Director of Franchising at Sport Clips, two key insights can be gleaned from the rate at which franchisees are expanding within a network:
1. The scalability of the model: If you are looking for scalability in your franchise selection, you want to see a high percentage of multi-unit operators and at least a handful of owners who have cracked the code and successfully moved beyond a handful of units. Some owner-operator models just aren’t set up for scalability and this would be clearly reflected in these stats. Also, if the largest franchisee is operating four units and you have ambitions of owning 25, you will want to invest a significant amount of time talking to these franchisees to determine if your goals are realistic.
2. Franchisee satisfaction with their investment: Point blank, franchisees who are unhappy with their investment decision don’t acquire more units. Strong existing franchisee growth is an indication that returns have justified investment costs and have provided enough confidence to double (or triple…) down on that investment.
Close to 75% of the more than 400 Sport Clips operating franchisees own more than one location. In fact, 10% of Sport Clips’ franchisees operate more than eight locations, with the top five franchisees operating 55, 36, 32, 25 and 24 units, respectively. Furthermore, over the last three years, a third of all licenses sold and 99% of existing store sales have gone to existing franchisees. Those numbers point to a solid franchise business model that is highly scalable and high franchisee satisfaction rates as well.
What makes the Sport Clips business model so scalable? The management structure is designed so the franchisee isn’t personally doing all the work. The semi-absentee model allows flexibility and freedom because managers handle the day-to-day operations. This allows the franchisee to work on business strategy and management decisions. Not having to be in the store everyday makes owning multiple locations viable. Growth potential becomes exponential.
Further adding to the scalability of the Sport Clips’ model are the relatively low startup costs and its operation as a stable, cash business with minimal inventory or receivables. Revenues are recurring, as men typically get their hair cut every three to four weeks.
Sport Clips’ strong emphasis on the total haircutting experience, consistency in outstanding customer service and reliability have earned the brand considerable customer loyalty. Strong support systems, consistent brand messaging, and strong core values further contribute to the strength of the business model. Existing franchisee expansion is supported and encouraged within the Sport Clips system. They are selective about who is awarded licenses for just this reason, and are dedicated to helping their franchisees maximize their growth potential first.
Scalability and franchisee satisfaction are key areas to investigate in any potential business opportunity. Existing franchisee expansion is a telltale sign that the business model is highly scalable and that they are happy to continue to invest. A high percentage of multi-unit owners represents both of these characteristics. Investing in a franchise is a big step, but armed with the knowledge of what to look for will help you make an informed and profitable decision.
To learn more about the scalability and franchisee satisfaction of Sport Clips, click here.