By Lisa Plonka, CPA, CFE, Plante Moran

As with all business ventures, the lifecycle for franchisors is unlikely to be a continuous ascent.

Instead, it’s a series of climbs punctuated by an often-perplexing but common juncture: the performance plateau.

There may seem to be an abundance of resources aimed at helping a franchisor create start-up and exit strategies, but less so about how to anticipate and respond to periods of slowed growth or stagnation. Far fewer resources show you how to reignite development and foster sustained vitality in the face of challenges such as declining unit economics, market saturation, demographic shifts and waning franchisee engagement.

Navigating this critical-yet-overlooked inflection point requires thoughtful root-cause analysis. The key to success is to take a disciplined, proactive approach that leverages data, encourages careful assessment, and responds to change strategically.

Stay a Step Ahead

No question about it: Entrepreneurial “gut feelings” are an integral part of the franchising model. However, sustainable growth builds on this intuition by grounding decisions in forward-looking, data-driven analysis. Market assessments and strategic business planning are good places to start.

Strategic planning, which uses data to model potential business scenarios, is best supported by gathering and monitoring performance data early on. This not only makes it easier to detect when your system might be headed toward a plateau, it also allows you to proactively make informed decisions about how best to re-entrench and strengthen the system.

Several types of data are necessary for truly informed analysis and planning. First, collect internal data that tells the story of your system’s performance trends over time — such as the key performance indicators (KPIs) of your existing franchisees that can be analyzed by region, tenure as a franchisee, and other characteristics. It’s also important to keep a vigilant eye on the pipeline of franchise agreements signed but not yet open as well as the number of new store openings, closings, and transfers. Then, compare with external data to get a snapshot of both the competitive landscape and relevant consumer trends.

Assess the Situation: Market Dip or Growth Plateau?

With data in hand, the next step is to distinguish whether a slowing growth trajectory reflects macroeconomic trends — such as general economic conditions or evolving consumer tastes — or issues within your system.

Slower progression may be due to macroeconomic factors if you witness:

  • Declining unit economics across your entire franchisee base
  • Competitors with similar business models that are also struggling to expand

When signs point to softening of the market, it’s often a good time to examine internal cost structures and work with franchisees on their profitability. Be careful, though, not to cut costs too deeply at the expense of future growth — such as by cutting back on internal teams critical to franchisee support and market development.

Signals that you may be hitting a plateau due to more structural issues within your franchise system include:

  • A widening disparity between your top-performing and lowest-performing franchisees.
  • A reduced pipeline of prospective franchisees and/or existing franchisees who want to open additional units.
  • Waning franchisee engagement (evidenced by lack of participation in franchisee events and forums, for example).

The question then becomes, “Should we be placing more emphasis on franchisee support and development, or is there a problem with our foundational business model?” The answer may be the former if competitors with similar business models seem to be doing well.

Design a Strategic Response 

When slowing growth appears to be caused by shifting consumer trends or economic factors, it may be time to consider modifying your franchise’s offerings, delivery systems, or other foundational attributes of the brand. The same may be true when a plateau appears to stem from structural issues within the franchise system.

However, it’s crucial to resist the temptation to try to alter everything at once since making sweeping changes could exacerbate the situation. A “drastic times demand drastic measures” approach risks disrupting the entire system, frustrating franchisees, and confusing customers.

A better option is to step back and let your data assessment and competitive analysis guide more precise, strategic adjustments. For example, what if your data and other insights suggest that growth will continue, but at a different pace? To adjust to new expectations, you may want to:

  • Adapt your processes. You may decide to focus less on opening additional units for a period of time, and more on ways to achieve better individual unit economics and adherence to existing brand standards. Other areas of focus could be on the efficacy of initial and ongoing training programs or the return on investment achieved by marketing spend.
  • Be more strategic about how and where you grow. At this point, a three to five year strategic growth plan can provide structure and clear direction for future growth. Solid demographic data is key to identify the best areas for market expansion before committing to a large development deal. This is also the time to remain adherent to high standards to qualify new franchisees.
  • Keep your franchisees in the loop. Be sure to create and maintain clear lines of communication within the system. Indeed, the best ideas for sustainable growth frequently come from franchisees “in the trenches”. Also, providing support to franchisees in implementing new systems or initiatives is critical to gaining buy-in.

Make Data Your Launchpad

Whether you opt to stay the course with your existing model or initiate changes, navigating a life cycle plateau calls for a thoughtful root-cause analysis before taking action. Review internal and external data. Consider whether challenges appear to be temporary or permanent. Keep a close eye on your strategic plan before making important decisions and keep communication flowing within the system.

It’s essential to use internal and external data to understand why the business environment looks as it does and carefully determine the path forward accordingly. Doing so can transform a plateau into a launchpad for continued future success.

Lisa Plonka, CPA, CFE, is partner at Plante Moran. She leads the franchise and consumer goods and services practice at Plante Moran, one of the nation’s largest accounting, tax, consulting, and wealth management firms. She is a Certified Franchise Executive and a member of the International Franchise Association (IFA), the AICPA, and the MICPA. She continually educates herself on issues impacting the franchise industry, then transfers that expertise along with creative strategies to help power clients’ growth. For more information about IFA supplier member Plante Moran, please visit franchise.org/suppliers/plante-moran/.

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