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The Question: 'How Many Franchises Should I Sell?'

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Don’t Make Google Yawn

Mark Siebert

Without fail, the one question I can count on hearing every week is, "How many franchises can I sell?" Sometimes the question comes from start-ups considering franchising for the first time—and the underlying subtext is: "And will I sell any at all?"  Other times it comes from their more-established franchised brethren who have failed to hit their development goals.

But regardless of the source and the motivation, the ultimate answer is always the same.  My standard reply is that they are asking the wrong question. What they should really be asking is, "How many should I sell?"    

When it comes to the "can" question, the easy answer is that "It is just a numbers game." But that answer simply does not go far enough.  The "should" question deserves a more thoughtful answer.  

Yes, if you spend money, you will generate franchise sales leads. And while close rates in franchising are notoriously low, the more money you spend on marketing, the more franchises you will sell. But closer examination of the sales process reveals something interesting.  It has a post-sale "back-half" that is at least as important as the sales "front-half" when it comes to selling franchises over the long haul.

The Front-Half Numbers Game

When one dissects the "front-half" of a successful franchise sales strategy, the process looks almost deceptively easy. There are five primary factors that will influence franchise sales success: concept, planning, messaging, marketing spend and sales process. Putting aside issues of territorial capacity and environmental influences (think financing), these five factors will dominate the franchisor’s ability to sell.

Of course, the most important factor in franchising is the concept itself—and there are literally dozens of factors within the scope of the concept when measuring franchise "salability." Is the concept well-designed and adequately proven? Does it have brand "sizzle" and, ideally, does it have a well-targeted franchisee? Is it readily replicable? Is the management team strong? Is the investment reasonable and, ideally, can it be financed by our targeted franchisee? Does it offer strong returns? The answer to these questions should tell the franchisor (or the prospective franchisor) whether they have anything to sell in the first place. Without a salable concept, the prospective franchisor needs to look no further.  

Assuming the concept is strong, the franchisor’s next task is to get the word out to prospective franchisees that would be both qualified and interested in the opportunity.    There are, of course, many ways to generate these franchise sales leads. And the franchisor who does not have the benefit of successful experience (or an unlimited budget for marketing experimentation) will need to prioritize their marketing efforts both by the source of these leads and by the specific media within each category.  While this can be easier said than done for the uninitiated, careful research combined with the advice of experts who understand what is working in the marketplace, provide most franchisors with a predictable method for success.  

From there, the franchisor must craft a message that will appeal to their targeted franchisee and deliver that message in a compelling format. This extends to every form of message delivery—from the ads that will generate the leads, to the collateral materials, videos, websites and even the correspondence that will carry a more-detailed message to the prospect. It is also important to remember here that it is not just what is said (the words) that carries the weight of the message, but it is the way the content of the message is delivered. If a franchisor delivers compelling content using a brochure that is poorly designed and printed inexpensively, the message received may well be that the franchisor is ill-prepared, undercapitalized, or lacks a commitment to franchising. Conversely, a well-designed, four-color brochure printed on a heavy paper stock will send a message of credibility and commitment—both to the prospect and to the lawyers, accountants, bankers, and relatives that will ultimately influence the buying decision.      

Once the lead comes in the door, of course, the sales process must be effective. A sophisticated franchisor will understand that the sales process starts with the person who answers the phone (or responds to the Internet lead), as they represent the prospect’s first contact with the company. The best sales processes will take the candidate through a well-defined series of steps that are aimed at mutual qualification and decision-making on a mutually agreeable time line. And the savvy franchisor will train the sales staff on best practices—covering both legal/compliance issues and those elements that will impact the sale (financing programs, competitive positioning and the structure of the franchise offering itself). From a sales-management standpoint, it is vitally important to closely monitor compliance and performance—and to use historical performance and industry benchmarks as management tools in developing the team. And of course, to be effective the franchisor must be adequately staffed to respond to the volume of leads it is generating.      

Which brings us (a little out of order) to marketing spend. The best marketing plans, along with their associated expenditures, will always start with the franchisor’s franchise sales goals in mind. The amount of money that a franchisor will need to spend to sell a single franchise will be influenced by a number of factors (starting with the four factors listed above). All things being equal (they never are, of course), a franchisor with a lower total investment will likely have higher close rates and lower costs-per-sale. Franchisors that are in "hot" industry segments or that have well-established brands will find lead generation easier and less expensive—and will likely have higher close rates as well. Franchisors that focus on a highly targeted franchisee will likely have a lower cost-per-sale figure … unless they are targeting the exact same highly-targeted franchisee every other franchisor in their segment is targeting (think multi-unit foodservice operators, the proverbial elephant in many a restaurant franchisor’s sights).  

Again, franchisors who have the benefit of expert advice or meaningful experience can probably come up with a relatively close approximation of their cost-per-sale. And even those without this knowledge can probably get close with a little industry research. So all the franchisor has to do is multiply their estimated cost-per-sale by their growth goal and spend the result effectively.  

Before concluding that the "front-half" of the sales process has unlimited upside, we should briefly address the notion that the supply of franchisees is limitless. Once franchise marketing spend exceeds a certain level, franchisors will begin to see diminishing returns on their marketing dollars. This happens because as top-performing media outlets are saturated, incremental ad spend is directed to less productive media. That said, most franchisors do not have ad budgets that are large enough to witness significant levels of diminishing returns (and if they are seeing them, it is likely that it is a result of poor media planning). So generally, this is not an issue.

In theory, the more money a franchisor pumps into the top of the franchise sales funnel, the more franchisees come out the bottom—at least to a point.    

From seller to post

Unfortunately for the speed-crazed franchisor, it is not that simple—nor should it be.   

Remember, the most important aspect of the front-end sales process is the concept itself.   Today’s franchise buyer is much more sophisticated than those of decades past and they have much more sophisticated research tools at their fingertips when conducting their due diligence on a particular concept. Virtually every book or website on buying a franchise will inevitably stress the importance of speaking with the franchisees and conducting online research on franchisee satisfaction. So if a significant number of franchisees are unhappy, the prospect will likely move on to the next opportunity. 

Once the luster is taken from a concept and the credibility of the franchisor is called into question, the prospect is lost and will likely go dark on you without explanation—even if your company-operated units are performing spectacularly.  

While the pre-sale process will get the ball rolling, it is the post-sales process that will sustain and increase your franchise sales momentum—or, if done wrong, will stop you dead in your tracks.

Top franchisors, knowing that the key to their success rests in the success of their franchisees, will start by ensuring that they are being selective in the sales process. A failed franchise may well be a direct result of the franchisee that purchases it, but when it comes time for validation, it goes without saying that the failed franchisee will not be pointing a finger at himself when a prospect asks why he failed. So it is first and foremost incumbent on the franchisor to be selective in the sales process and to try its best to weed out potential failures before they take root in the system. As odd as it sounds, one of the best ways to sell more franchises is to sell fewer franchises.    

Once the sale is made, the franchisor needs to be sure that they provide the franchisee with the training and support that they will need to be successful. And, of course, this training and support will require time, effort, and (especially if the franchisor is looking to achieve aggressive growth goals) incremental staffing in anticipation of those training and support roles. Franchising is littered with examples of franchisors who sold themselves into oblivion by allowing the sales side of the cycle to outstrip their ability to provide the franchisee with meaningful support.

In order to answer the "should" question, the franchisor must first understand what it takes to make their franchisees successful.  What is our target franchisee’s background?  How much training will they require at headquarters and in the field? Will they need help with site selection, lease negotiation, contracting and build-out? How frequently should our field team visit and what qualifications should they have? How much home-office support will they require and what is the nature of that support?

Even questions related to the type of franchise sold and the size of the territory will ultimately factor into the equation.  

The answers to each question, if we are focused on the "should" question, will have a profound impact on speed of growth. A franchisor looking to the future will need to staff the organization in anticipation of the support needs the sales force will create. However,  real question we are trying to answer involves determining what it will take to provide our franchisees with the best opportunity for success.

Finally, the importance of ongoing communication with the franchisee cannot be underestimated. Franchisors need to make franchisee relations and communication a top priority—and again this communication comes at a cost. A struggling franchisee that is in constant communication with a franchisor that is actively working to be successful—while they may not speak to a concept’s validity—will probably treat you fairly when talking to prospects. But even a successful franchisee will be unlikely to validate well if they feel that they are being ignored, undervalued, or dealt with in a less-than-honest manner.  

And once your validation turns, it will make little difference how effective your lead generation plan is. Franchisees will be unimpressed with your once-impressive brochure. The concerns raised by existing franchisees during the validation process will cause qualified candidates to think twice about your opportunity. And no matter how much you spend or how polished the sales process is, the franchise system will likely spiral downward with little chance of recovery. The perception among any prospects that speak with those franchisees will be that the concept itself is flawed.  

In many respects, the greatest strength of franchising—the ability to grow largely unconstrained by capital—can also be one of its most treacherous traps. Franchisors can get addicted to growth like a ballplayer on steroids, only to find that their long-term health has suffered in the pursuit of short-term performance. Ultimately, the savvy franchisor will focus on controlled growth, recognizing that the most important capacitor on their sales should not be advertising expenditures, but instead the ability to make their franchises successful.

Mark Siebert is the chief executive officer of the iFranchise Group (www.ifranchisegroup.com). His consultants have more than 450 years of combined experience in franchising,  and have worked with 98 of the nation’s top 200 franchisors.  Reach him at 708-957-2300 or info@ifranchise.net.

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