Understanding the failure rate of any franchise investment is instrumental in making a wise decision when choosing such an investment. Indeed, for one considering investment opportunities in the automotive tools industry, there is a major player known as Matco Tools – a company that started its journey way back in 1946. Today, Matco Tools has emerged as one of the finest distributors of professional automotive tools and equipment in the USA. However, like in any business, prospects in the franchise should consider the success stories and risks, including franchise failure.
We will focus on the failure rate of Matco Tools franchises in the USA. We will be discussing some factors that contribute to franchise failures, the realities of running a tool distribution business, and what a prospective franchisee can do about this to mitigate risks and increase his or her chances of success.
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What Is Franchise Failure?
It is important to understand what constitutes franchise failure before we delve into the nitty-gritty of what Matco Tools is. Generally, a failure in a franchise occurs when the franchisee is unable to keep afloat the business due to financial inability, operational failure, or for that matter, other reasons. In most cases, this means the closure of the franchise location or termination of the franchise agreement, or he is unable to keep operating profitably.
A franchise might fail for a variety of reasons, including:
| No revenue to offset operating costs |
| Insufficient market demand or saturation |
| Inadequate support from the franchisor |
| Lack of management skills or bad judgment |
| Economic downturn or other outside factors |
The most common unit of measurement on a franchise system’s failure rate would be how many units close or fail within any given period, often within the first three to five years of operation.
Overview of Matco Tools Franchise
Matco Tools utilizes a model of mobile franchise businesses that are a little different from any other brick-and-mortar concept. Matco-franchisees work as independent distributors, strictly selling tools and equipment brands named after Matco, directly to their customers in the service repair automotive industry. This way, the franchisee can build relationships with mechanics and body shops as well as the direct delivery of products to these clients’ doors.
In the case of the franchise model of Matco Tools, there’s also an advantage in having it mobile with low overhead compared to that of a store and the easy handling of operations. It has a few unique challenges, including having strong sales and efficient route management skills and building and maintaining a loyal customer base.
What is the failure rate for Matco Tools franchises?
Although figures of failure rates for the franchises of Matco Tools are not in the public record, franchise research and industry analysts believe that Matco Tools has a relatively smaller failure rate than many other franchise systems. This is due to several reasons:
Established Brand and Demand for Product Established repute in the automotive tools industry as it is more than 75 years old. It provides a decent platform for franchisees. The demand for high-class tools in the automotive repair business will never diminish, and hence, the volume of customers will always be there for the franchisee to bank upon.
Mobile Franchise Model: One of the advantages of the Matco Tools franchise model is that it is mobile. This reduces some of the typical risks associated with traditional storefront franchises, including high rent, utilities, and maintenance costs. Eliminating the need for a physical location, franchisees can therefore operate with lower overhead expenses, which helps mitigate financial risks.
Extensive Training and Support: With extensive training and ongoing support extended to franchisees, Matco Tools becomes extremely crucial in reducing the probability of failure. The newly opened franchisee follows a training process in the art of sales techniques, route management, product knowledge, and business operations. Matco also affords the franchisees with continuous marketing and operational support, which keeps track of the successes of franchisees.
However, despite all these advantages, some Matco Tools franchises still face difficulties that may lead them to failure. Some factors that will prove hard for a franchisee in the attempt to succeed might include weak sales performances, low demand for their products in a specific territory, or simply wrong management.
Common Causes of Failure of Matco Tools Franchises
While the overall failure rate for Matco Tools franchises may be lower than other franchise systems, some franchisees are still going to face issues that will lead them to fail. Some of the most common reasons why a Matco Tools franchise might fail are described below:
Poor Territory Selection
A good territory is one of the essential factors in the success of a Matco Tools franchise. It must have enough potential customers, which include automotive repair shops, mechanics, and dealerships, to maintain the business of the franchisee. Most of the time, the territories allocated to a specific franchisee are not robust and still hold lesser prospects, and the same sales occur continuously.
Territory selection is particularly critical to the mobile franchise concept because franchisees rely on developing local business relationships and maintaining a regular sales route. If the market is too small, saturated, or economically depressed, then it proves very difficult for the franchisees to be able to reach the sales levels necessary to maintain the business.
Poor Sales/Business Skills
However, achieving success as a Matco Tools franchisee requires a specific kind of individual with strong sales competencies and a control mind for his business. Being able to build the right type of relationship with customers and understanding their needs is necessary to win their loyalty through providing excellent customer service. Sales incompetent individuals may struggle severely in running the business when it comes to hitting the top revenue targets.
Another factor in running a Matco Tools franchise is inventory, financial, and operational management. Business management inexperienced or operationally negligent franchises will face difficulties in some processes which could lead to financial stress or business failure.
Insufficient Financial Planning
If nothing else, managing finances may prove to be more costly for a Matco Tools franchisee compared to other business ventures, but there are still a lot of expenses franchisees have to bear, like buying merchandise or supplies, repairing the vehicle, and other business-oriented expenses. Without suitable plans and cash flow management, a franchisee may face financial problems, especially in the initial stages of the business when revenue builds up slowly.
New franchisees who underestimate the amount of required working capital or do not plan for unforeseen expenses may take a long time to cover costs to break even, and eventually fail in business.
Competition in the Market
Even though Matco Tools is a franchise worth being a part of, the pool of competition that comes in the form of mobile and stationary distributors for tools, and online retailers, makes it an uphill battle even for established brands. These types of franchises are being run by competitors like Snap-on Tools, Mac Tools, and Cornwell Tools in mobile format, meaning the same customers may end up being targeted by all of them.
Franchisees with unfavorable conditions on the communication end might not attract a loyal customer base due to their incapability to differentiate their services, build strong customer relationships, or offer competitive pricing in stiff competition.
Economic Factors
Actually, the state of the local economy can determine completely whether a franchise in Matco Tools succeeds or fails. The franchisees depend mainly on automotive repair shops and mechanics for purchases. Demand from them can also be relatively unstable in the short run due to economic factors. In low economic times, repair shops limit the purchase of tools. This could affect the sales and income of franchisees.
In the meanwhile, the economic situations certainly are out of the control of the franchisees, so weaker economies will produce fewer sales and a tougher battle to remain profitable.
How to Reduce the Risk of Franchise Failure?
While any type of franchise business is susceptible to potential risks, potential Matco Tools franchisees can still help mitigate the risk of failure by taking a few precautions to ensure the success of their business.
1. Market Research
Before entering a Matco Tools franchise, conduct some serious market research with regard to potential success in your territory. Research the local automotive repair industry, the number of potential customers, and the competition in the area. These will help you know whether your territory can command enough demand for your business.
2. Invest in Sales and Business Training
It is the lack of sales experience that may mean success or failure for a Matco Tools franchisee. Limited experience in sales requires extended training or sourcing information that provides experiences in the same. Matco Tools offers starting training, but professional development continues to hone one’s sales skills and be able to make great relationships with customers to increase sales.
More importantly, developing business management skills will enable you to track finances, inventories, and operations. Ideal business management does not commit the most common blunders, including cash flow issues and inventory management mishaps.
3. Establish a Business Plan
A complete financial plan will be pivotal to the success of your Matco Tools franchise. You will need to make detailed projections of expenses, income, and working capital for at least the first three years of business operation. Do not forget that you should include in your projections the extra expense costs that may be incurred in the event of repairs to your vehicle or economic downturns.
Since franchisees will begin to run their business with a clear financial plan, they will have realistic expectations about profitability, and the small business will most likely not encounter financial problems and stay viable.
4. Use franchise support
Matco Tools provides franchisees with full training, marketing support, and ongoing support. Utilize all these resources as much as you can in building your business and finding solutions to problems you may encounter along the way. It’s still the prospect that is more successful when they do seek the help of the franchisor who offers such than the one who tries everything on his or her own.
When you have a problem, work with your franchise support team to provide solutions to the problem you’re facing so you can do better.
Explore: Matco Franchise Cost, Profit and How to Get Started in 2024?
Familiarization with the Failure Rate of Matco Tools Franchise
Matco Tools is quite renowned since it is an ancient brand, and the franchise failure rate is relatively low compared to other industries. Nonetheless, the franchisees must have knowledge about the difficulties and risks attached to the venture. The principal reasons for the failure of the franchises are bad territory selection, lack of sales and business acumen, inadequate finance planning, and a competitive market.
This can be offset if the franchisee does thorough market research and invests in sales as well as business training, prepares a full financial plan, and taps into their resources while in their franchise. Indeed, with proper planning and commitment, Matco Tools franchisees can develop a financially sound and sustainable business in the highly competitive automotive tools field.
