It’s been said that an optimist is someone who looks at a problem and sees an opportunity. We recently talked with three franchisors about the problems they’re facing in today’s economic environment. They readily identified three key challenges — and just as quickly defined their strategies for turning those challenges into opportunities for success.

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One of the biggest challenges for many franchisors and franchisees is maintaining margins in the eye of the “perfect storm” of a sluggish economy, rising commodity prices and a growing consumer demand for value. Being smart about how you maintain your margins is key.

For Pollo Campero, that means bringing extra value to its processes. For example, they bread and season their chicken by hand on site and follow many kitchen procedures associated with upscale restaurants. But it also means finding new ways to perform standard tasks.

“There is a huge opportunity for companies who can maintain margins and still do what’s right for the customer,” says Lisken Kastalanych, vice president of marketing for Pollo Campero, which has more than 300 locations in the United States and internationally. “Maintaining margins in a smart way — a way that pleases the customer — is the big opportunity.”

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“We are constantly working to improve top-line sales through organic growth, which helps margins,” says Kastalanych. “We’ve outpaced the industry significantly in 2012 in same-store sales growth due to focusing on what the consumer wants, with strong value-led deals and offers. We are also working to connect with our customers, through more testing of social media and loyalty programs.”

“Instead of a royalty fee based on top-line gross revenue, ours are based on net profits of the company,” states Josh Wall, vice president of franchise and strategic development. “So we only receive our royalty fee if the franchisee is profitable.”

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Using innovation to generate higher profit margins, provide more value to customers and create a stronger appeal to franchisees has always been important. In today’s economic environment, it’s absolutely crucial.

“Some of the things we do include email marketing, texting campaigns, SEM and using technology in ways that allow us to be very geocentric when it comes to lead generation,” says Martha O’Gorman, chief marketing officer.

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Liberty Tax Service has similarly pursued several ideas in the eye of the economic perfect storm. Based in Virginia Beach, Va., this tax-service operator expects to operate about 4,500 locations during the 2013 tax season.

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The tightening of traditional funding has created a new financial landscape: In order for growth to continue, many franchisors will have to seek new,alternative or innovative ways to finance.

“I think we are going to see more franchisors putting their money where their mouth is,” says Christian Brothers’ Wall. “Christian Brothers does it to a certain extent now. But I think we will take on more of that exposure by essentially lending to our awarded franchisees instead of relying so heavily on banks and small-business programs. It’s a good opportunity for us to put our capital to work while also backing our franchises; it says that we have a lot of confidence in how we award our franchises.”

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Of course, funding franchisees is out of reach for some franchisors. But finding ways to lower the cost of entry, seeking alternative sources of capital, or even networking and playing “middleman” between franchisees and investors can help franchisors keep their growth plans on track during sluggish times.

“What we’re seeing from our perspective is that financing has started to loosen up a little bit, and we are excited about that and hopefully seeing financing activity reaching closer to the levels of three to four years ago,” says Wall. “

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Whether your franchise requires a land purchase or simply needs space in an existing strip mall, pinpointing the location that will yield the best possible return is still of paramount importance to franchisors and franchisees.

A decrease in surrounding employment rates, economic growth or average household income can knock a once-promising location from a franchisor’s short list.

Liberty Tax has partly answered the location challenge through a strategy of establishing franchises near its largest competitors. But since Liberty’s largest competitor has more than 10,000 locations, finding the ripest opportunities can obviously pose its own challenge.

For these franchisors and others, pinpointing the most profitable locations for expansion can have a dramatic impact on a franchisee’s long-term performance.

“Being in close proximity to our core customer is critical,” says Wall. “The first step is just simply to take a look at the demographics. How’s the population trending? How are the median and average household incomes? If those numbers are looking good, then we move to the psychographics, to see where our core customers are and where they are not, and see how that helps us. If that looks good, then we move to asking about available pieces of land in those areas.”

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For successful franchising, it’s more important than ever to have a keen understanding of your customer and a precise definition of your market position. Buxton gives franchisors the tools they need to truly define their target audience and to see exactly where the greatest concentrations of those high-value customers are.

We give franchisors the ability to make informed, data-driven decisions for site selection, marketing strategies and territory development. If you need help growing your franchise, reach out to us.