What are the most common reasons a franchise fails?

There are three main reasons a franchise can fail.

First and foremost it’s an issue of capital. One of the reasons a franchise is able to expand far quicker than an independent business is because of the capital injection generated by franchisees buying units. But with any expansion is the need to develop infrastructure. If the infrastructure can’t keep up with franchisee needs, marketing and brand management, it’s headed for trouble.

Next is marketing issues. The success of a franchise brand is in its ability to attract and retain a solid customer base. If the marketing is lacking or ineffective there won’t be a return on investment from the campaign in the form of feet through the door. No customers means no business, franchise or not.

Finally, the roles of the franchisees and franchisor are not clearly defined. A franchisee should know what’s expected of them and that it’s still their job to go out and attract business. Similarly, it’s the franchisor’s responsibility to support the franchisee, provide water tight operations manuals, and training. If these elements are missing from the relationship, it can result in franchisees selling off their units and the franchisor not generating enough revenue to keep the brand going.

Tracy Lee Nicol
About the Author
Tracy-Lee Nicol is the managing editor of Franchise Zone Magazine and deputy editor of Entrepreneur Magazine. She studied her Masters degree in Art History and Visual Culture at Rhodes University and spent the next two years working and travelling in Asia. Her love of people, business and teaching is reflected in telling the stories of entrepreneurs, franchisees and franchisors, inspiring others to take the leap to being their own boss and bringing about positive change in South Africa.

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