Bigger Haystacks, Fewer Needles
The need for increased efficiency in lead qualification
Selling franchises has always been a hunt for the proverbial needle in a haystack, especially for franchisors who are appropriately choosy about their needles. Finding well-qualified franchisees is a challenge in any market, but this recession is unlike any we have ever seen.
Like all recessionary environments, high unemployment will spur many people to consider franchising for the first time. And this recession is no different. According to the U.S. Bureau of Labor Statistics, the national unemployment rate at the time of this writing is an uncomfortable 9.7 percent. And it’s higher in certain markets.
But what makes this number unusual is the sheer number of out-of-work professionals— many of whom have been unable to find new jobs—who have decided to give up job hunting altogether and are ready to leave the corporate rat race for good. With now-or-never attitudes, many are deciding to go into business for themselves—and that’s good news for franchisors seeking to expand.
Studies conducted by Challenger, Gray & Christmas, the Chicago-based executive outplacement firm, reports that 11.2 percent of displaced executives and mid-level managers are currently seeking business opportunities. That’s significantly up from 2.8 percent less than two years ago when the Great Recession was first felt. And many of these seasoned professionals are excellent targets for franchise ownership.
To put this in perspective, in a more typical year, one might expect some 700,000 new businesses in America—perhaps 50,000 of which might turn to franchising. But if these estimates are to be believed, this wave of jobseekers-turned-entrepreneurs could account for as many as 2 million new businesses over the next couple of years. And if a like number of entrepreneurs turn to franchising, the implications for franchise growth are nothing short of staggering. And these numbers do not even take into account the under-employed, those with second businesses, and the employed who continue to seek the American dream. According to CNNMoney, the underemployment rate in the United States is above 13 percent.
Meanwhile, many Web portals that once charged by the month are beginning to perfect the art of the pay-per-lead approach. Once a boon to franchisors who felt they could not quantify what their monthly lead portal payment was generating, these portals have found all sorts of ways to “suggest” that the viewer click on additional franchise opportunities to maximize their revenue per visitor. The unfortunate result, of course, is that franchisors are increasingly inundated with portal leads who have little interest (and in some cases, little recollection) of a particular franchise opportunity that they clicked—at a cost of $40 or more to the franchisor. And while these may not be the most qualified leads in the world, they are ignored at a franchisor’s peril. We have a very large haystack of potential franchisees.
Unlike past recessions, where credit usually loosens, this recession born of credit excess has swung the needle in the opposite direction—and, at least for the present, left it hanging there, despite a number of efforts to loosen it. (I will not debate whether those efforts are too few; credit for small businesses remains tight).
Consider the following: The Fed Funds rate remains below 0.5 percent—the lowest level in history. The SBA has increased the amount of loan guarantees, eliminated SBA fees, and is even considering a LIBOR-based pricing alternative. The government has bought tens of billions of SBA loans and there is even talk of SBA direct lending. But despite these incentives, no one has stepped up to fill the lending void left when the Preferred Lenders left the franchise marketplace—and likely, no one out there can or will in the short term. The net result is the days when a collateralized franchise candidate could obtain a loan with 10-percent equity and a 610 credit score are long gone. Today’s prospective buyers will need at least 30 percent equity and credit scores of 700 or more if they are to hope to qualify for loans—and often, lenders want to see prior industry experience, a second source of income, 100-percent outside collateralization, or other credit enhancements before they will pull the trigger.
As these standards are tightening, the accumulated equity of many prospects has shrunk dramatically. Real estate assets have, in some markets, declined in value by 20 percent or more. Stock portfolios and retirement accounts have often declined by 30 percent off their highs. So these prospects no longer have the capital they once had to qualify for these increasingly scarce loans—forcing them to look at lower levels of investment or face rejection from today’s more conservative bankers. The net result, which comes as no surprise to most franchise sales professionals, is that closing rates are dropping. Historical closing ratios that have consistently been in the 2- to 3-percent range are closer to 1-percent, making the sales professional work two to three times as many leads for the same sale.
Perhaps the most interesting aspect of this paradox is that given the sheer quantity of unemployed and underemployed in today’s marketplace, there may actually be more qualified prospects in the market than ever before. The problem becomes one of focus: With many franchisors operating as leanly as possible, today’s development professionals often find themselves strapped for resources when their time is, by definition, increasingly inefficient.
Savvy franchisors, of course, are not using the financing drought as an excuse to let their fields lay fallow. Instead, they have adopted steps to increase salesperson efficiency in an effort to address the problem. Among the strategies we see being employed:
1. Leverage technology
Autoresponders have been around for years. But increasingly, franchisors are utilizing a franchisee’s answers on data capture forms to allow the franchisor to customize auto-responses and to prioritize their prospects. The use of these auto-responder matrices allows the franchisees to self-select their responses based on financial and other qualifications. More qualified candidates can be targeted for immediate follow-up via an electronic copy to the sales staff, while less qualified prospects receive a e-mails that tactfully discuss their shortcomings and explain their options, while attaching copies of .pdf brochures and links to streaming videos. While this technique does not eliminate the need to call each and every prospect, it does push the qualified prospects to the top of the stack. Other, more recent technologies will go even further, guiding franchisees through a sophisticated sales process of which a great deal takes place online, reducing the down time that is spent chasing prospects.
2. Leverage support staff
Other franchisors have had success using their support staff to pre-qualify franchise inquiries. While this approach is more “high-touch,” it requires the franchisor to properly train its staff on how to ask the right questions and obtain the necessary answers, without stepping into the sales role. One of the dangers of leveraging in-house staff is that they may know your business and be tempted to answer questions rather than directing the prospect to the development officer who is properly trained on what can and should be said (and on franchise law). Another issue with this solution is that all too often, the staffers find themselves juggling multiple tasks. If a franchisor elects to use in-house talent to screen new candidate leads, it is imperative that this task is the employee’s No. 1 priority. Otherwise, these contacts will be given short shift among other competing demands on their time—a classic waste of costly franchise marketing dollars.
3. Outsource your lead pre-qualification
One of the most recent trends we have seen is the use of lead qualification services (LQS). In essence, these companies will act as an outsourced pre-qualifier—freeing the franchise salesperson to focus exclusively on qualified prospects. Generally, you can expect these outsource firms to make at least a half-dozen attempts to contact and pre-qualify each new incoming lead in the first week of that lead’s communication. If they are able to speak with the prospect, they will generally do only some rudimentary qualification—financial capabilities, geographic interest, and perhaps time-frame—and promising prospects will be sent the franchisor’s promotional literature and appropriate correspondence. Some such services will also offer the ability to “hot transfer” qualified prospects to the franchisor’s sales staff—although this may require some additional technology to be installed—and others will simply attempt to schedule a call. With that call scheduled, the lead qualifier’s job is finished. These services usually cost less than hiring a full-time dedicated staffer, and the best LQS providers use sales-oriented staff, rather than telemarketers. Given the number of unreturned calls and unqualified prospects that the top-level sales professional must deal with, a lead-qualifying service can significantly improve a sales professional’s efficiency. Moreover, for franchisors not responding to their leads promptly, this approach will allow them to contact prospects in a more timely fashion—improving close rates in the process. Just as it has in the past, small business in general, and franchising in particular, will once again lead the U.S. economy out of this recession. But this time, the franchisors leading the charge will be the ones who understand that this recession—unlike recessions past—has altered the basic fabric of the franchise sales process. Instead of pulling in their horns, these savvy franchisors will find ways to capitalize on the huge numbers of franchise prospects by improving the efficiency of their sales process—and will reap a bountiful harvest while neighboring properties go untilled.
Mark Siebert is the chief executive officer of the iFranchise Group (www.ifranchisegroup.com), a franchise consulting firm. Mark can be reached at 708-957-2300 or at firstname.lastname@example.org.