The key drivers to franchise financial success are being identified through new research from Griffith University’s Asia-Pacific Centre for Franchising Excellence. The just-released Franchise Performance Metrics Report 2011 identifies sector averages, as well as averages for the top 20 percent of franchises (and low 20 percent) across more than 60 key performance indicators.

Centre director and lead researcher Professor Lorelle Frazer said the research is the first time financial data on a range of franchising metrics had been collected, analysed and made available to the sector.

“The Franchise Performance Metrics Report 2011 provides new insights into true franchise performance,” Professor Frazer said. “The report provides analysis of individual key performance indicators and best practice observations, as well as observations of the franchise sector as a whole.”

Key findings:

• Franchising as a sector has grown
• Many franchises have unsustainable long term growth
• A quarter of franchises in the sample experienced a decline in the number of franchise units, with an average of four unit losses or five percent of franchise group size
• The retail non-food sector experienced the greatest losses
• Retail food had no reported declines
• Average ratio of field support personnel to franchisees = one to every 22 franchisees

Report co-author and Avatar Consulting director David Campbell said the research also suggests Australian franchise systems may not be achieving optimal or even sustainable growth rates.

“The data suggests many franchise systems aren’t hitting optimal ‘spool rate’ of franchise unit growth levels early on, leading to slow, and in some cases unsustainable long term growth,” David said. “Franchisors have on average five franchise units per year of operation, while the low quintile only have an average of just under one per year, which is unlikely to provide levels of capital required to fund sustainable growth.”

The Report also provides averages for young, emerging and mature franchise systems where these provide greater insight, as well as for small, medium and large systems in some sections.

Individual metrics are provided for a range of areas, including franchisee reporting and compliance, franchisor financial performance, franchisee performance, royalties, franchisor executive structure and remuneration, franchisor net revenue per franchisee, franchise renewals, start-up costs, and more. Average support costs per franchise unit are also included in the report.

“Franchisors can now use this data to make more informed business decisions and better allocate resources, as well as see how they’re really performing against sector averages, as well as the top franchises,” Professor Frazer said.

* The research is based on data from nearly 70 franchise systems and represents 9,000 franchisees. The Centre intends to continue the research annually to monitor trends overtime, with the next round of data collection due for November.  Franchisors interested in participating can register their interest here.