HowToFranchiseYourBusiness
The Decision to Franchise
◦ How Franchising Works
◦ Alternatives
◦ Quality Control
◦ Legal Aspects of Franchising
Marketing Your Franchise
Selling Your Franchise
Creating a Successful Franchise Strategy
◦ Structural Decisions
◦ Financial
◦ Organizational Development
Questions and Discussion
Wearegoingtotrytocoveragreatdealofinformation,soweare askingthatyouholdyourquestionsuntiltheendofthesession unlesstheyareonaparticularslide.
More hands-on experience than any other firm
◦ Consultants with over 900 years of franchise experience
◦ 98 out of the top 200 franchise companies
◦ Offices in Chicago, Dallas, Los Angeles, Boca Raton, Miami-Fort Lauderdale, Atlanta, Toronto, Dubai, UAE, and Riyadh
More “senior level” experience
◦ Hands-on experience at start-up and established franchisors
◦ Former CEOs, CFOs, EVPs of more than 50 different franchise companies
Adia (now Adecco), Armstrong Tile, Auntie Anne’s, Dunkin Donuts, LINE-X, Pearle Vision, McDonald’s, PIP Printing, Schlotzsky’s, Snap-on Tools, Snelling & Snelling, and other national brands
The ability to bring more resources
◦ Faster completion
◦ Ability to assist in several areas simultaneously
Breadth across four functional areas
◦ Strategic planning
◦ Quality control
◦ Marketing
◦ Organizational development
Franchise experience in 50+ countries
Six years in a row, voted the #1 Franchise Consulting Firm in North America in an independent survey of over 1,100 franchisors
Numerous awards and publications
A Premier fully-integrated public relations and digital media agency specializing in franchised businesses
◦ Public Relations
◦ Digital Lead Generation
◦ Search Engine Marketing
◦ Content Marketing
◦ Social Media Publishing
◦ Pay-Per-Click Advertising
◦ Website Design & Development
Both franchise development and consumer branding
Team with Hands-On Franchise Experience
◦ Real world experience with nearly two dozen brands
◦ Efforts have resulted in tens of thousands of franchise leads
◦ And many hundreds of franchise sales
Recent honors and awards:
◦ Top supplier from Entrepreneur five years in a row
◦ Best New Agency (Ragan & PR Daily Ace Awards)
◦ PR Agency Elite – Mission: Fit to Own (PR News)
◦ Best Website Finalist (PR News)
◦ Best Media Relations Campaign Finalist (PR News)
◦ Best SEO Finalist (PR News)
Considering franchising your business?
Franchising less than one year?
Franchising more than one year?
FTC rule 436 cites three elements that legally define a franchise:
◦ The use of a common trademark
◦ The exercise of control or provision of assistance
◦ The collection of fees, royalties, mark-ups or other monies from the franchisees
If you have all three elements, you are a franchise, regardless of what you call it
Some state definitions vary, but are similar
Do not have to use the “f-word”
Franchisee typically pays
◦ Franchise fee average about $25,000 to $35,000
◦ Royalty range between 4% and10%
◦ Advertising range between 1% and 2%
◦ Franchisor will often sell product to the franchisee
Franchisor typically provides
◦ Initial training
◦ Operations manual and systems
◦ Ongoing supervision and support
◦ Other support services
Restaurants only 25%
Retailers
Direct sales organizations
B-to-B Service
◦ Consulting
◦ Advertising
◦ Placement firms
◦ Internet related
B-to-C Service
◦ Law firms
◦ Medical practices and Spas
◦ Hotels
◦ Home Meal Preparation
◦ Senior Care
Leverage Capital
Speed of Growth
Motivated management
Reduced risk
Few operational concerns
Higher quality
Organizational leverage
Must “share profits”
◦ Franchise unit will usually generate less profit than a profitable unit
◦ But far more profit than an unprofitable company-owned operation
Less Control
Good relations with franchisees take work
MYTH: Litigation
Survey by independent industry source indicated that only 27% of franchisors had any litigation
◦ This includes large companies like McDonald’s and others who are targeted for frivolous lawsuits and lawsuits unrelated to franchising
◦ McDonald’s, with 30,000+ contracts had (2008) only six pending lawsuits. Big Target. Litigation rate of 0.02%
◦ Recent example:
A group claiming that the way they make chicken is unhealthy
Group suing them for making their children obese
Group suing them for beef tallow in cooking oil
A Group suing them for collection of tax on bottled water
One suit by a JV partner
One pending franchisee lawsuit from a franchisee who owes $3 million in unpaid royalties
* Not responsible for acts of an independent contractor (franchisee) relative to third parties. Exceptions are when a) you create an agency, and/or b) if you are negligent.
What are your goals? BE SPECIFIC!
◦ Certain levels of profits
◦ Sell company for a specific amount
What is your risk tolerance?
◦ How much are you willing to invest and re-invest?
◦ What other resources do you have to bring to bear?
Conduct Cash Flow Analysis to See if You Can Reach Your Goals
◦ Example:
Goal = Sell company for $10 million at the end of five years
Two units in operation
Total Equity Investment in New Operation = $150,000
Total available capital = $200,000
Existing Free Cash Flow for Reinvestment = $100,000/year
Units Break Even in First Year
After that, Free Cash Flow from New Units = $50,000/year/each
This Example
◦ Would need to open 27 company units
◦ That would take about 12 years of reinvesting everything
◦ Total Investment = $4 million over that time frame
Cannot get there from here
Alternatives:
◦ Change Goal
◦ Change Time Frame
◦ Change Assumptions (structure, capital devoted, leverage, etc.)
◦ Raise equity to grow faster
If you are raising equity, factor in dilution
◦ If you will give up 50% of the company, you need to grow twice as big
◦ Run the numbers again
Terminal Value
$2,750,000 in free cash flow by Year Six = $19,250,000 valuation. Divide by two to account for 50% ownership = $9.6 million selling price.
AGAIN, ONLY IF NO INCREMENTAL OVERHEAD IS NEEDED TO SUPPORT
With an influx of a little over $3 million
◦ Can jump-start growth and leverage off of that growth
◦ Will need to get to about 50 – 54 units
◦ Total investment $7.5 - $8 million
◦ But you are using investor money
Problem: Realistic valuations
◦ Valuing the existing business – (4X – 7X EBITDA)
◦ Year One Business Value = $700,000
◦ Business Value after Equity = $3.7 million
◦ Sophisticated investor would want 81% ($3M/$3.7M)
◦ Would need to find an investor who would invest $3M for 50%
◦ Might try numbers again at $5 million and a 20% stake???
◦ At some point, just not realistic
Capital availability even with realistic valuations
◦ Limited in today’s marketplace
◦ Control an issue
Name Fee Trademark License =
Advantages
• Less Regulation
- Still a Franchise in NY
Disadvantages
•Lower fees
•Do you have strong name?
•No control over brand
Often, this alternative is eliminated because the company does not have adequate brand strength, and, even if they did, they would risk losing their trademark if they did not exercise control. Moreover, it is important to note that the “control” element of the franchise definition is very easy to trigger.
System Fee Business Opportunity orLicense =
Advantages Disadvantages
•Less Regulation?
- More at the state level
•Lower fees
•Do you have strong name?
•No control
•Create competition
•Poor image
This can be a viable option for some, but the loss of the branding element is an issue that should be carefully considered. For example, what would happen to your licensed channel if a branded channel were to be introduced by your competitors? Will you have national accounts? Or a desire to create consumer brand loyalty?
Dealership or Distributorship = Name System
Advantages Disadvantages
•Less Regulation
•Easier to sell
•ABSOLUTELY NO FEES
•Support provided for “free”
•Must have product to sell
•No revenues from service
•Products can be “stepchild”
•Dealer defections to:
- better products - cheaper alternatives
Dedicated dealerships can have many of the same advantages as franchising. The biggest disadvantages are the need to pay for services out of the wholesale margins. CAUTION: Can create an inadvertent franchise after the fact, as happened with Mitsubishi v. To-Am.
Advantages Disadvantages Agency or SalesRep = Name System
•Less Regulation
•Easier to sell
•ABSOLUTELY NO FEES
•Support provided for “free”
•Must have product /service
•Turnover is high
•Increased training costs
A “top-down” flow of revenues will avoid franchise laws. Again, be aware of the creation of an inadvertent franchise.
Technology-based shared services
◦ Use an app to drive business
◦ Avoid franchising by top-down fee structure
◦ Uber, Lyft, Airbnb
Certification programs
◦ Certification Mark, not a Trademark
TM/SM = Source of Product or Service
CM = Characteristics of a Product or Service
◦ Cannot be used as a TM by the owner of the mark
◦ Must be willing to offer to all who qualify
◦ Cannot have exclusive territories
◦ Can easily stray into a franchise relationship
The decision should be goal driven
◦ Distance
◦ Speed
◦ Obstacles
◦ Risk tolerance
A Volvo or a Rocket Ship?
Don’t have to choose only one vehicle
Don’t decide to franchise (or whatever)
◦ Instead, decide:
Do I want to build a third party distribution channel?
Do I want that channel to be branded?
If it is branded, do I want to control quality?
How do I want to be paid?
The law (or your lawyer) should never dictate your good business decisions
Successful prototype
Credibility
Differentiation
“Sizzle”
Buyer appeal
Value Proposition
Teachability
Adaptability
Systemization
The franchisee should make a return on the time they invest
◦ No different than if they were to go out and get a job
◦ Salary should be “market rate”
The franchisee should make a return on their investment
◦ No different than if they invested in a stock
◦ Return should be commensurate with what they would make if they were to make an investment of similar risk
◦ Ability to sell back their investment at the end of the term
Franchisees expect that they will need to build their business
◦ Will expect these returns in three years or less
Annual Cash-on-Cash R.O.I. at the unit level – our criteria
◦ 15% for Owner Operators
◦ 20% for Area Developers (who will support additional overhead)
Occasional exceptions
Perfecting the business
◦ If you have perfected your business, SELL IT!
◦ If you are standing still, someone is gaining
◦ McDonald’s in 1955
Quick vs. Slick
◦ If you are going head to head with more established competition and your business model is not highly differentiated – be sure to refine first
◦ More unique, the sooner you should franchise
Risk: Someone with a camera and a notepad
First mover advantage
Who was the first . . . ?
12,200+
30,000+
Business plan/strategic direction
Legal documents and registrations
Operations manuals
Training program
Quality control mechanisms and systems
Effective marketing plan
Franchise collateral materials
Website and web-based marketing
Advertise
Design and implement a sales strategy
Staff an organization to implement the plan
Capital
If you don’t know where you are going, then any road will take you there.
The Adventures of Alice in Wonderland
You are entering a new business.
Goals drive your business. Start with support and cost structure.
What do you need to do to help your franchisees succeed?
Don’t rely on guesswork: The futureofyourbusinessisat stake.
Financial analysis is essential.
Reverse engineer your success.
Goal Sell for $10M in 5 Years
Average Selling 6.7 times EBIT
Year Five Earnings $10M/6.7 or about $1.3M
Average Royalties
$30,000 per franchise
Average Net Royalties $10,000 per franchise
Need to sell
$1.3M/$10,000 = 130 Franchises
There are certainly a large number of neophyte franchisors who take a “Ready-Fire-Aim” approach
◦ Often rely on guesswork
◦ Or analysis of what comparable franchisors are offering to make major decisions
“Copying” is not a strategy – it is a recipe for disaster!
◦ Uniqueness is important to success, whether achieved through the business model, marketing, support, structure, fees, or marketing.
◦ Copying assumes that business economics are the same, support is the same, and that a new franchisor will simply differentiate themselves based on great franchise marketing
◦ But established franchisors often have many advantages not shared by newer franchisors
◦ So, the copycat strategy that is taken by many new franchisors can be responsible for their failure
The impact of a 1% royalty mistake
◦ If a single franchisee generates $500,000 in revenue
◦ 1% = $5,000 off the bottom line
◦ But franchisees will never tell you that they are paying too little and often inertia will keep the royalty where it is at for years
Structure
◦ Structure dictates support requirements and responsibilities
◦ Will (should) impact fees, royalties, targeted franchisee
Targeted franchisee
◦ Will dictate support requirements as well
Territory – 10% mistake is huge
Franchisor whose franchisees generate $500,000 sells 10 territories
At a 6% royalty, that franchisor is losing $300,000 a year …forever
Plus enterprise value of $3 million lost
Total Loss from 10 territories with a 10% error: $9 million+
Other fees and margins on product sales
Many people think franchises have lower level of quality – just the opposite is true
The Quality Trade-Off
More difficult to control
Higher Caliber
More highly motivated
Longer term
Studies show franchisees outperform Anecdotal evidence
Intelligence
Capitalization
◦ Biggest reason for failure
◦ Can cause franchisees to cut corners
Work Ethic
Personality
◦ Experience in leading a team
◦ Tendency toward being an entrepreneur
◦ Honesty and ethics
◦ Philosophy and cultural fit
◦ Nature (Confrontational or adaptive)
◦ Compatibility (you are “married” for the next 20 years)
“Job Specific” requirements
Straight A Student
Long tenure with job
Corporate job
Drives family car
Few tickets
Married
Looking for security
B or C Student
Moved from job to job
Owned businesses
Sports car
Lots of tickets
Divorced
“Never saw a rule he didn’t want to break.”
Role as a sales tool
Role as a training tool
Role as a reference tool
Role as in reducing liability
Extension of the legal documents
A good Operations Manual can help you avoid litigation
A bad Operations Manual can be a franchisor’s worst nightmare
Operations Manuals must provide you with adequate brand control but should not be too prescriptive – a fine line
Must avoid creating an inadvertent “agency” relationship
Must avoid potential areas of negligence or take great care when prescribing actions
Should cross-reference regulations and not cite them
Should be updated annually and reviewed by professionals and attorney
I told you not to panic! Everything will be just fine.
"Some
people seem to think there's no trouble just because it hasn’t happened yet. If you jump out the window at the 42nd floor and you’re still doing fine as you pass the 27th floor, that doesn’t mean you don’t have a serious problem."
–
Charles Munger, Vice Chairman, Berkshire Hathaway –
Discussions with Key Stakeholders
Review existing material, forms, & documentation
Develop preliminary outline
Determine gaps in current documentation
Assign responsibility for content creation
Identify Subject Matter Experts for gaps
Interview Subject Matter Experts
Onsite observation of units & documentation
Resolve Best Practices Conflicts
Draft material to cover all identified gaps
Edit all material into common style & “voice”
Revise first draft of Operations Manual based on client & legal input
Faster growth requires formal training programs
◦ For your staff
◦ For franchisees
Focus on training the trainer (your franchisee)
◦ Franchisee will train their staff
◦ Should have tools to do so
Video pushes QC to lowest level of organization
Online training decreases costs, increases quality, and can decrease liability
◦ Customized by employee
◦ Document what is reviewed and test scores
◦ Lowers on-site training time and costs for both the franchisor and the franchisee
The FTC rule
◦ Disclosure document with 23 items
◦ Disclosure fourteen days prior to sale
◦ Final Franchise Agreement seven days prior
◦ Financial Performance Representations
◦ Consistency with Franchise Disclosure Document
State regulations
◦ 14 registration states
◦ Regulate advertising
◦ Business opportunity states
◦ Determining applicability (even definitions vary – NY)
◦ Some remnants of the “Old FTC Rule” remain
Laws vary from state to state
◦ Franchisor’s state of incorporation
◦ Franchisor’s domicile
◦ Franchisee’s residence
◦ Territory covered
◦ Where discussions take place
Track these variables closely
Check with your attorney when in doubt
States having franchise registration or business opportunity laws
Must be registered prior to soliciting franchise leads
Submission of advertising materials
◦ CA, MD, MN, NY, ND, RI, SD, WA
Submit all advertising to your attorney in any event
Relationship and state specific laws
◦ Termination
◦ Non-compete
◦ Escrow
◦ Other
Franchise Legislation Within the US 2023
Legend:
States having no franchise or filing requirements
States having franchise registration requirements
States where franchisors must file to comply with business opportunity laws
Notes:
• Within Indiana, Michigan and Wisconsin, registration is effective immediately upon the application being filed.
• Florida, Nebraska, Kentucky, Utah and Texas require a simple exemption filing. Once that is filed, a franchisor can begin to offer franchises.
• South Carolina provides an exemption if the franchisor has filed a State trademark registration.
• Connecticut, Maine, South Carolina and North Carolina provide an exemption if the franchisor has obtained a Federal registration of its trademark
• Six States require registration of advertising prior to use. (CA, MD, MN, NY, ND, WA)
• New York, Oklahoma and Rhode Island require the FDD be provided to a prospective franchisee at the earlier of (i) the 1st personal meeting held to discuss the franchise or (ii) 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).
• Michigan and Oregon require the FDD be provided to a prospective franchisee 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).
• Many states also have State Relationship Laws that impact issues such as franchise termination or non-renewal. Your franchise legal counsel can advise you on relevant issues involving these states.
• Check with your franchise legal counsel for additional details and updates which are available.
Cannot provide Earnings Claims unless in Item 19
◦ No information on sales
◦ No information on earnings
◦ Limited information on expenses (costs as a percentage of total costs are ok)
◦ Start-up costs are included in Item 7 and must be disclosed
Advantages and disadvantages
◦ Must be appropriate
◦ Sell faster?
◦ More or less litigation?
50% choose not to do Earnings Claims
◦ For good reasons, bad reasons, or bad information
◦ Selling franchises in the face of no FPR
Rescission
◦ Return fees paid
◦ Make good on franchisee’s investment
Fines – both civil and criminal
◦ Up to $11,000 per violation for the FTC Rule
◦ State fines of up to $100,000
Attorney’s Fees
Damages
Litigation costs and distraction
Barred from selling franchises
Disclose violations for 10 years
Private rights of action at the state level
Government enforcement
Personal liability
In some states, constitutes Class 4 felony (jail time!)
Start locally, then regionally
◦ Cluster support
◦ More effective franchise advertising
◦ Consumer advertising economies
◦ Brand building
◦ Buying economies
Don’t expand faster than your support capability
◦ Quality control is key
◦ Nothing sells franchises as well as happy and successful franchisees
◦ Three hour drive time
Different franchises require us to target different types of franchisees –affecting the media and message used for effective marketing.
Identify your prospect as narrowly as possible
◦ Survey Competitors
Background
Hot Buttons
Media
◦ Survey Top Franchisees
Characteristics of top performers
Are we selecting the right lead generation strategies?
Is the advertising message appropriate for our targeted franchisee profile?
Are we targeting the right prospects and using the right media based on our development strategy?
Name Recognition
◦ 40% say joining a “known brand” is not vital
◦ 40% would prefer a known brand, but are open to newer concepts
70% or more will visit the corporate office…100% should visit yours
Only 10% are looking because of job loss in a normal economy
◦ In today’s world, however, that number may be 30% to 40% depending on the nature of your franchisee
80% will talk to your franchisees…100% should talk to your franchisees
Average Franchisee Recruitment Budget
(In Thousands of Dollars)
Source of Franchise Leads by Media
Percentage of Total Leads Received: 2011-2023
2016-2023 (2024 data is still pending)
Average
Closing Costs (Media Dollars Per Sale Excluding Broker Fees)
Meet With 3 – 10% of Leads
The Franchise Sales Pipeline
Send Marketing Materials, Prequalify, Schedule Meetings
Initial Meetings with Candidates Further Qualify
Convert 15% - 20% of Completed CIRFs to Sales
(Franchise Update reported 30.5% in 2023)
Close 65% - 75%
Average 45 – 90 Days Lead to Meeting Time to close can range from 30-90 days or more following the initial face-toface meeting
Total time to close: often 12-20 weeks
Marketing Cost = $11,638 Average per sale*
Overall Expected Close Rate = 1.82%**
Close Rate for Qualified Leads = 15% (those that meet certain pre-qualifiers)
* Averagecostpersalerangedfromabout$9,000toover$12,000inrecentyears.WhilenotmeasuredseparatelyintheFranchiseUpdatereport,CostPerSale numberscanvaryforemergingbrands,inparticular.
**Historically,closerateshavehoveredbetween1.8%and2%,buthigher(around3%)inrecentyears,butnowappearstobelevelingofftopreviousaverages, sincecloseratedroppedbackto1.82%thisyear;averageCostperLead(CPL)was$155intheprioryear,$197in2021,andspikedtoover$300in2020dueto thepandemic.ThenumbersabovearebasedonthemostrecentFranchiseUpdatesurvey.
Franchise marketing is very different from consumer marketing
Franchise marketing is highly regulated
Tools:
◦ Your web page should be your first concern
◦ Develop a mini-brochure for the sake of economy
◦ A full-sized brochure is essential for credibility
◦ E-brochures and other recent tools
Be sure to have your attorney and registration states review all materials
A good concept
+The Right Message +Marketing Plan
+Adequate marketing budget +Good sales technique = leads = meetings = franchise sales
Some studies have indicated the average new franchisor will sell:
An average of 9, 11, and 13 franchises in their first three years
Median sales of 4, 5, and 6 sales in their first three years
The Franchise Sales Cycle
Important concept to understand when measuring hiring decisions, advertising and marketing related expenditures –
Present Value of a Franchise (PVOF)
Should use this principle in decision-making
PVOF = Net Present Value of franchise fees, royalties, product/equipment sales, advertising fees, and other revenue, less any direct expenses, discounted to today’s dollars
The sale of a single franchisee paying 6% royalties on AUVs of $500,000 can result in $600,000 in revenues, plus advertising, product purchases, increased buying power, etc.
Be selective
Hire the best you can afford
Maintain personal involvement
Let brand maintenance and the potential for franchisee success be your guideposts
Train your sales staff
Measure everything
And, most of all, be sure a standard process is in place for handling each prospect
If the concept does not work, do not franchise
Use franchisee success as your capacitor of growth
With those caveats, franchise sales are a natural result of a well executed sales and marketing strategy
The number of franchises you sell will not be a result of “averages” but instead a result of marketing expenditures.
Franchise Program for Aggressive Growth
Approximate Development Activity Schedule
Benchmarking
Initial Planning Session
Strategic Planning & Gap Analysis
Financial Sensitivity Analysis
Disclosure Document
Franchise Agreement
State Registration Process
Operations Manual & Revisions
Training Program
Train-the-Trainer
Training Video Scripts
SkyManual Online Operations Manual
Research / Profiling / Brief
Franchise Marketing Plan
E-Brochure
Mini-Brochure
Website Development
Franchise Sales Video Script
Franchise Sales Visual Aids
Franchise Sales Training & Manual
Franchise Implementation Strategy
Field Consulting Manual
Implementation Consulting Strategy
Legal
Coordination
Quality Control
Franchise Marketing Sales & Implementation
The iFranchise Group does not provide legal services but instead works through outside legal counsel
Franchise Program for Moderate Growth Approximate
Development Activity Schedule
Benchmarking
Initial Planning Session
Strategic Planning & Gap Analysis
Financial Sensitivity Analysis
Disclosure Document
Franchise Agreement
State Registration Process
Operations Manual & Revisions
Research / Profiling / Brief
Franchise Marketing Plan
E-Brochure
Mini-Brochure
Website Development
Franchise Sales Training & Manual
Franchise Implementation Strategy
Implementation Consulting Strategy Legal Documents
Franchise Marketing
Sales & Implementation
Legal to sell in 36 non-registration states
With registration, legal to sell in all states
Franchise Program for Conservative Growth
Approximate Development Activity Schedule
Benchmarking
Initial Planning Session
Strategic Planning & Gap Analysis
Financial Sensitivity Analysis
Disclosure Document
Franchise Agreement
State Registration Process
Operations Manual & Revisions
We can modify our programs to meet the needs of any company getting into franchising. Our fees can range from $20,000 to $200,000+.
Consulting and legal costs vary based on franchise company’s situation:
◦ Desired speed of growth influences services needed
◦ Ability to do work internally
Do not go into franchising undercapitalized
◦ Legal fees: $15,000 to $35,000+
◦ Consulting and Development: $40,000 to $200,000
◦ Organizational expenses: $10,000 to $25,000
◦ Franchise Marketing: $8k - $10k per sale (six months)
◦ Personnel: varies widely
Can bootstrap growth
Can spend hundreds of thousands
Everyone believes they have the solution to lead generation
◦ PR practitioners – credibility
◦ Ad agencies – predictability
◦ Social media firms – engagement
◦ Search engine optimizers – visibility
◦ Video houses – compelling storytelling
Messaging is not coordinated across media professionals
When your only tool is a hammer, then every problem is a nail
Most franchise companies do not have an unlimited marketing budget
Circumstances will be very different
◦ Goals
◦ Budgetary restrictions
◦ Geographic focus
◦ Profile of your franchisee and your customer
◦ Quality of existing websites and materials
◦ In-house resources and their capabilities
◦ Competitors
Need to allocate resources based on an integrated lead generation strategy
A canned approach will not work
Your message is no longer centered on print media. Instead, integrate all media around your website.
A focus on visual appeal alone can be a disaster
Too many websites lack
◦ Optimized content
◦ Mobile – friendly designs
◦ Organic traffic
◦ Substance over flash
Develop a plan to increase unique visitors, convert traffic, and improve franchise lead rates.
◦ Responsive design with mobile in mind
◦ Create effective calls-to-action
◦ Longer amount of time spent on-site
◦ You need a website design that converts traffic (conversion modeling)
◦ Improve franchise lead capture rates
Public Relations as a next step
◦ Positions brand in marketplace
◦ Builds credibility and validation
◦ Generates franchise sales leads
◦ Creates brand awareness
◦ Establishes thought leadership
◦ Amplifies marketing initiatives
◦ Validates your concept
also
Business Objectives
▪ Maximize core brand
▪ Foster better understanding and appreciation among key audience segments
▪ Leverage and integrate PR to existing marketing programs
▪ Help drive franchise leads
Communications Objectives
▪ Position brand and key spokespeople as thought leaders and innovators among key audiences and the industry
▪ Generate brand awareness
▪ Establish credibility
▪ Build media relationships at the local, regional and national levels
▪ Pull key messages through all digital marketing initiatives to drive SEO
▪ Engage with key audiences
Focus on proprietary innovations and technology
Integrate PR with other marketing initiatives
Establish brand with influential trade media
Deepen relationships with all media
Connect brand with bloggers
Establish core brand values and pull through digital
Concentrate on trends, events, news and other influential outreach points
Focus on business growth
Identify audience segments (i.e., Veterans, Latinos, women, etc.)
Create strategic pitches for key audiences in the U.S.
Develop online press kits/media materials
Focus brand core values
Look for ways to leverage key influencers and spokespeople
Position key messaging in paid media opportunities
◦ Wire distribution of press releases
◦ Mat release
◦ Audio news release
◦ Radio market tour
Develop target media lists
Integrate ongoing outreach to bloggers and social media
Pitch, pitch, pitch
Seek out trend stories for inclusion
Develop seasonal or current event pitches
Hold event to leverage engagement with media, bloggers, consumers
o Grand Opening
o Trade Shows
o Announcements
o Blogger Events
o Launches
Take advantage of opportunistic media for brand, industry and key spokespeople
Total impressions – Year over Year
Number of interviews/opportunities
Tiered Media – Define Tier I, II, III
Number of clicks/shares/calls
Participation in digital activities, social media, and web traffic
Consistent increase of Likes, Tweets, reposts, shares and links
Event attendance (as scheduled)
Inbound leads (typical close rate 8% - 12%)
Quantify positive, neutral content vs. negative content
Build a social media following
◦ Developing a social advertising campaign prior to the event drives brand awareness and consumer engagement
◦ Unique hash tags specific to events connects your online community
Conduct community outreach
◦ Connecting with local chambers of commerce, schools, clergy and governments helps building lasting communal relationships
Establish relationships with key media
◦ Building relationships with media – both reporters and bloggers –creates grassroots movement and gains web and foot traffic
Secure media coverage
◦ Amplifying brand recognition and building credibility in the minds of potential consumers
““Thebestplacetohideadeadbody isonthesecondpageofaGoogleSearch.”
75% of users never scroll past the first page of search results
There are over 170 million Google results for the word “franchise”
Google is more than 65% of all online search
◦ Google’s algorithm — a closely held secret
◦ The algorithm changes up to 500 times a year
◦ Google’s goal: Deliver fresh and relevant content to the searcher
Ranking factors fall into four basic categories
◦ On-Page coding
◦ On-Page content
◦ Inbound Link Authority
◦ Social Media Signals
Strong positive SEO correlations
◦ URL length
◦ Organization of keywords in title
◦ Existence of description
◦ Existence of H1 title tags
◦ Existence of H2 title tags
◦ Meta description tags
◦ Page title tags
◦ Alternate tags
◦ Keywords in description
◦ Overall speed of site
No longer relevant
◦ Keyword domains significantly less important
◦ Keyword density declining in importance
Strong positive SEO correlations
◦ Internal links
◦ Number of words
◦ Number of keywords in body
◦ Presence of keywords in external links
◦ Presence of keywords in internal links
◦ Number of images and videos
◦ Blog posts and press room
◦ Social media integration
Negative correlations
◦ Keywords
◦ Advertising (even AdSense)
Inbound Links = Links from other site
Strong positive SEO correlations
◦ High number of backlinks
◦ SEO strength of backlink URL
◦ Length of anchor text
◦ Percentage of backlinks containing keywords
Searchmetrics study
◦ 1st returned result = 13,358 backlinks
◦ 2nd returned result = 3,693 backlinks
◦ 30th returned result (bottom of page 3) = 103 backlinks
If you do not know (and work on) this number, you should
Proactively develop backlinks as part of your strategy
Social media has had a substantial increase in strong SEO correlation – It is now a primary factor
Strong positive SEO correlations
◦ Google +
◦ You Tube videos
◦ Facebook shares, post totals, comments, and likes
◦ Tweets
Local SEO
◦ Google Places
◦ Google Maps
◦ Foursquare and other Geo-Targeted site
◦ Review sites (Yelp, etc.)
Social Media Assessment
Coding
• Google’s Algorithm changes constantly
• It searches for “fresh” content
• It searches for “relevant” content
• Your competitors are optimizing while you do not – driving them to the top
Social Media is important in its own right – not just for SEO
Why it is so important
◦ Defines the image of your franchise brand
First stop for many prospective franchise investors
◦ Validates your business model
72% of the 30-49 year old bracket are now active on social media
60% of the 50-64 year old bracket are now the fastest growing segment on social media
◦ 47% of people that follow a brand on Twitter are likely to visit that company’s website
◦ Pinterest has more than 100 million users (85% female)
◦ Instagram has 500 million monthly active users
Conversations
◦ Average person sees over 3,000 ads a day
◦ Only 14% of people trust advertisements
◦ But 92% trust the recommendations of others
*http://www.jeffbullas.com/2015/01/17/20-social-media-facts-and-statistics-you-should-know-in-2017/
Focus on a specific audience
◦ Target groups
◦ Strategy development
◦ Visual branding
◦ Community development
Enhance your presence
◦ Create engaging content
◦ Develop a plan
◦ Develop guidelines
◦ Execute
Listen and respond
◦ Hootsuite
◦ Social Mention
◦ Google Alerts
◦ Business Wire
◦ Wildfire
o Over 1 billion active users
o Average user spends 55 minutes per day
o Franchise lead generation
o 424 million users
o Average user spends 31 minutes a day
o 450 million users – more influential and affluent professionals
o Better for franchise lead generation
YouTube
o Second largest search engine
o Video accounts for a significant portion of Google’s search results
Other Social Sites can be even more important
Largest network of professionals online
◦ 450 million members
◦ 4 million business company pages
◦ 2.1 million LinkedIn groups
◦ 40% of users check LinkedIn daily
More decision makers are on LinkedIn
◦ CEOs have an average of 930 connections
LinkedIn usage
◦ Highest among the 30-49 (32%) and 50-64 (26%) age groups
◦ Far above-average among those with a college degree (46%)
LinkedIn usage trends upward alongside household income (HHI)
◦ 44% among those with HHI of at least $75k
◦ More than triple the rate for those with less that
◦ $30k in HHI (15%)
Professional network of individuals eager to enter into business discussions.
Excellent platform to showcase your company and engage in discussions with like minded individuals and companies
LinkedIn can be used to generate new leads and fill pipelines.
Email marketing is not dead!
Email marketing can be easily integrated into your marketing strategy and cause it to be more effective.
Email marketing enhances the relationship of your business with its current or previous customers.
◦ Encourages customer loyalty and repeat business
◦ ROI can easily be tracked with less delay
With the growth of mobile and the future of mobile e-commerce, email marketing is just getting started…
◦ 98% of prospects check their email at least once a day.
◦ Email is the most popular activity on smartphones among users ages 25-46.
Sources: statista.com, mailerlite.com, expresspigeon.com, 2015-2016
Industry Publications
Video results are returned in 70% of searches
YouTube now second biggest search engine with more than 1 billion unique visitors per month
At a minimum, all companies need to have their own YouTube page if only for SEO purposes
Videos need to be optimized
◦ Should be .mov or .mp4
◦ YouTube video should be 1080p HD
◦ Title, video description, and video tags - are the core elements of optimized YouTube search
Why it is so important
◦ Highly targeted marketing
◦ Google fields 1.2 trillion queries per year.
◦ Top 3 sponsored links account for 41.1% of the clicks.
◦ Poorly managed accounts drive up costs quickly.
Test-Refine-Test
◦ Keyword research (including negative keywords)
◦ Campaign development, budgeting, and bids
◦ Ad design and testing
◦ Build custom landing pages
◦ Ongoing PPC monitoring and management
◦ Google display retargeting advertising
◦ Google display advertising
A company with a large PPC budget can still get out-positioned by smaller competitors with lower budgets.
Competitor’s Budget = $300
Bid of $15.00 per click at 20 clicks per day = $300 per day
Budget = $500
Bid of $10.00 per click at 50 clicks per day = $500 per day
And if there were only 30 clicks to be had that day, you might just be out of luck.
You Can Increase Your Click Bid to $20
Competitor’s Budget = $300
Bid of $15.00 per click at 20 clicks per day = $300 per day
When you run out of ad dollars at the end of the day
But if you do, you need to increase your budget to $1,000 per day or Anticipate that you will get only half as many clicks
Allowing the competitor with the lowest budget to gain top positioning for half a day at 1/5 the cost
Budget = $100 Day
GOALS
Initial Evaluation, Research, USP, & Strategy Creation
Responsive Website Must Capture Leads, Have Call to Action
Website Optimized Around Keywords & Inbound Links
Channels Prioritize & Optimize Appropriate Social Media Channels
Create Blog to Push Content to Social Media Channels
Messaging – Press
Releases, Stories, Blog Posts, Ads
Publishing – Post Content, Deliver Releases, Ads
Outreach & Engagement
– Writers, Editors, Bloggers, and Social
Tracking and Refinement of Various Campaigns
Enhancement –
Mobile Web, Video
Posting, Retargeting
ROI Analysis of What Is Delivering Best Results
Reallocation of Resources
Based on Results, Trends, Seasonality, Competitors
GOALS
Initial Evaluation, Research, USP, & Strategy Creation
Responsive Website Must Capture Leads, Have Call to Action
Website Optimized around Keywords & Inbound Links
Prioritize & Optimize Appropriate Social Media Channels
Create Blog to Push Content to Social Media Channels
Messaging – Press Releases, Stories, Blog Posts, Ads
Publishing – Post Content, Deliver Releases, Ads
Outreach & Engagement
– Writers, Editors, Bloggers, and Social
Tracking and Refinement of Various Campaigns
Enhancement –
Mobile Web, Video
Posting, Retargeting
ROI Analysis of What Is Delivering Best Results
Reallocation of Resources Based on Results, Trends, Seasonality, Competitors
GOALS
Initial Evaluation, Research, USP, & Strategy Creation
Responsive Website Must Capture Leads, Have Call to Action
Website Optimized around Keywords & Inbound Links
Prioritize & Optimize Appropriate Social Media Channels
Create Blog to Push Content to Social Media Channels
Messaging – Press
Releases, Stories, Blog Posts, Ads
Outreach & Engagement – Writers, Editors, Bloggers, and Social Publishing – Post Content, Deliver Releases, Ads
Tracking and Refinement of Various Campaigns
Enhancement –
Mobile Web, Video
Posting, Retargeting
ROI Analysis of What Is Delivering Best Results
Reallocation of Resources
Based on Results, Trends, Seasonality, Competitors
We create Integrated Lead Generation Marketing plans tailored around your budget and goals!
TopFire Media was created to meet market needs head-on with our fully-integrated approach.
◦ Franchise Lead Generation
◦ Website Design & Development
◦ Search Engine Optimization
◦ Public Relations
◦ Social Media Management
◦ Content Marketing
◦ LinkedIn Optimization
◦ Email Marketing
◦ Pay-Per-Click Advertising
It never hurts to get a second set of expert eyes on your online marketing presence!
◦ Website Performance
◦ SEO Keyword Rankings
◦ Social Media Presence
◦ LinkedIn Profile
◦ PPC Advertising Campaign
◦ Online Reputation
Prioritize your efforts based on results and budget
Unique process unlike any sale
◦ Quit your job
◦ No more benefits, paid vacations, 401ks
◦ Put your trust in someone you have never before met
◦ To invest your life’s savings
◦ In a business in which you have no experience
◦ And to which they are making a “lifetime” commitment
And, oh, by the way, I can’t tell you how much you may make
Ensures sales efficiency and consistency
◦ Call-backs automatic
◦ Standard letters
◦ Sales effectiveness
◦ Salesman continuity
Data collection
◦ Marketing effectiveness (pipeline information)
Facilitates back marketing to older leads
Programs:
Act!, Goldmine, etc. We generally do not recommend Access or other build-to-suit database
applications
due to the cost of development
First lesson of franchise sales: Nobody ever “sold” a franchise
Psychology of “the award”
◦ Two way street, you must qualify
◦ If you do qualify, you are special
◦ You must follow our rules
This psychology must permeate your thinking and your technique -- we are not salesmen, we are facilitating an award
“Buy” vs. “Invest” in a franchise
“Franchise Support Center” vs. Headquarters or “Director of Franchise Development” vs. “Franchise Salesman”
Value Proposition:
Proven systems
Established brand
Advertising economies
Operating economies
Shared knowledge
Support services provided
This assumes that most people looking to buy a franchise are logical in their approach….. ….which is often not the case.
Chooses an industry that best suits their background and lifestyle
Checks overall financial investment and financial return of the franchise concept
Undertakes thorough due diligence…carefully reviews the FDD and Franchise Agreement
Determines if they “fit” with the franchise culture
Compares the franchise offering to competitors
Follows the above steps prior to arriving at the decision to purchase the franchise
Some people buy franchises on emotion (spouse, job, home, car, etc.)…do not follow a logical path
A candidate’s research is often imperfect
◦ May not even read the Disclosure Document
They are motivated:
◦ To be the boss and be independent
◦ Anticipated Financial Return
◦ Fun and excitement
Looks at your competitors as well as your concept
◦ 30% will look at six or fewer
◦ 30% will look at 6 - 12
◦ 30% will look at 12 – 20
The psychology of how & why people acquire a franchise:
They buy for their reasons, not yours…
‘Want’, ‘need’ or ‘fear’ factors drive behaviors
‘Control’, not money is single biggest motivator
Selling “selectivity” …
Mutual decision process
Sell the ‘negative’—don’t hide it!
They want to know what happens next in the process
The psychology of how & why people acquire a franchise:
This is a “selection process”…though we use sales ‘tactics’ to drive the process
People are making life decisions! (Fear is the dominant behavior motivation – there is no ‘trust’ in the early part of this process)
“CONTROL” of their lives is the primary motivator, not money!
They believe that they can achieve their goals through the franchise
They can see themselves doing the work…
They want to belong to a community…
They want to be successful!
Lead Received, Input and Qualified
Electronic or Print Brochure Sent to Candidate
(CQ)
Personal Interview
FDD
Scheduled – Concept Review Call Background, Criminal, and Reference Checks
FDD Review Call, Unit Economics Call Scheduled
Discovery Day Held at Franchisor’s HQ
Objections generally mean the candidate is NOT ready to buy
Questions are typical in the closing process…
Listen carefully for the difference – Questions generally relate to “how – or when - do I” do something and “objections” are generally expressing concern
The questions you don’t want to ask are the questions you must ask!
Reinforce positive actions and withdraw emotional support when they are moving away from a positive decision…
Constantly tell them what the next steps are...
Be patient…but:
Ask for a decision…consistently!
Objections are an important part of communication…
Need to be patient with your prospects!
If we do not know the candidate’s objections, we can’t overcome them and move forward…
If they are not asking questions, you are unlikely to move the sale forward
Key to uncovering them is to ask questions
What’s preventing you from. . .
What other information . . .
It seems as if you’re concerned about . . .
Look for objections to discuss with your prospective franchisee whenever you cannot get an “advance” …
Gain continual agreement for what your mutual “next steps” are throughout the process…
Goals with the prospect should be committed for both in terms of actions and timelines
Goals should be set for each contact with the candidate:
o Each goal should ADVANCE the sale
o Get them into the habit of saying YES in the process!
o Have several goals for each contact with the candidate
Look for HIDDEN OBJECTIONS from the candidate
Always focus on creating ADVANCES in the sales process
Emotionally support the buyer as the sale advances –withdraw emotional support as they move away from affirming behavior!
Review our materials
Submit the evaluation form
Get spouse or partner on a conference call
Check out competition; pricing in market
Measure market demographics
Evaluate the market for potential sites
Schedule a “Face-to-Face” or “discovery day” meeting
Get the candidate to call franchisees
Talk to banker, lawyer, accountant, investor
Schedule a closing meeting
Total Leads, by source & yield
Qualified leads (eliminate duplicates, not available)
International and “out-of-market” leads
Total Marketing kits sent
Applications received
Disclosures completed
Total franchise sales (transactions)
Total franchise units (franchises)
Lead and franchise sales cost analysis should be done monthly, quarterly and each year
Expect that you are being compared to other franchise opportunities
Don’t assume that they are only looking at your category and don’t assume your prospect will proactively share this information with your salesperson
Determine who your true “competitors” are
Know your points of difference as a franchise system…be prepared to “sell what you have” …
NEVER speak negatively about other franchise systems – it can cause broad doubt about the franchise “business model”!
Focus on your competitive advantages – sell what you have to offer them!
Single Unit Franchising
Single-UnitFranchisingisthetraditionalmeansoffranchised expansion...
Advantages of Single-Unit Franchising
Single-Unit Start-up Franchising
Franchisor Company
Franchise Owner
Greatest control over unit-level operations.
Individual franchisees are more likely to be active in day-to-day operations.
Single-unit candidates are more easily identified than multi-unit prospects.
High degree of control over the selection of existing franchise owners for additional locations.
Disadvantages of Single-Unit Franchising
Slower rate of growth compared to more aggressive sales strategies.
Ongoing support can be more expensive when supporting a larger number of single-unit operators.
Issuestobeaddressedinmakingadecision…
Issues with Single Unit Operations
Single-Unit Start-up Franchising
Franchisor Company
Franchise Owner
Territorial issues can be more complex, as can encroachment issues
There will be a premium placed on training and communications under this structure
Many more relationships to manage.
Questions to ask
How fast do you need to grow to meet your company’s growth objectives?
Does your business lend itself better to an “owneroperator”?
Can you “grow your own” multiple unit operators using single unit franchising?
ConversionFranchisingisaformofsingleunitfranchisinginwhich preferredtermsareextendedtosomeonewhois“alreadyinthe business”...
Advantages of Conversion Franchising
Conversion Franchising
Franchisor Company
Franchise Owner Independent Operator
Easily identifiable target franchisee can mean lower costper-lead
Like individual franchisees, conversion franchisees are more likely to be active in day-to-day operations.
Less rigorous training may be required – reducing costs
Existing customer base can mean instant, possibly higher, royalties
Disadvantages of Conversion Franchising
Franchisees can be entrepreneurial and more likely to challenge the system
Generally offered lower franchise fees as an inducement; sometimes lower royalties
Post-Termination restrictive covenants more difficult or impossible to enforce (or will not be signed)
ConversionFranchisingisaformofsingleunitfranchisinginwhich preferredtermsareextendedtosomeonewhois“alreadyinthe business”...
Issues in conversion franchising
Conversion Franchising
Franchisor Company
Franchise Owner Independent Operator
Conversion franchisees are extremely sensitive to the prospect of taking a royalty on existing sales, but it is probably not worth Territorial issues when territories overlap
converting them if these sales are excluded
What constitutes a conversion candidate – be specific
Questions to ask
How fragmented is my marketplace?
How independent are my candidates?
How bad are their habits?
If there are other franchisors in my marketplace, why haven’t these independents already converted?
Does the money saved in franchise marketing, franchisee training, and initial support have a value that translates to reduced fees/royalties or an otherwise preferential offer?
The key with conversion franchising is “incremental value.”
AreaDevelopmentAgreementsarelikeanoptionagreementforasingle operatortoopenmultipleunits…
Advantages of an Area Development Strategy
Rate of unit growth can be faster provided area developers meet their development schedules.
Experienced multi-unit owners may be strong operators and require less support from the franchisor.
Existing multi-unit operators of other systems are easily identified.
Disadvantages of an Area Development Strategy
The market to attract qualified multi-unit operators is highly competitive among franchisors seeking to expand.
More than half of all area developers fail to open the number of locations called for in their development agreement.
If problems develop with an area development franchisee, their territory can remain undeveloped as issues are resolved.
Larger area developers can command a high degree of power within a franchise system.
Rate of growth can, paradoxically, be slower in circumstances in which a slow development schedule supplants aggressive franchise marketing.
Issues when using an Area Development Strategy
Established area developers, if targeted, will have a number of issues that may be difficult to overcome:
o Existing POS Systems and Charts of Accounts
o Vendor relationships and discounts may be well established
Territorial issues minimized but development agreement structure becomes vital
Dealing with unfulfilled area development contracts
Questions to ask
Does the business model lend itself to passive ownership?
Are the unit economics strong enough to attract are area development prospects?
Will we be able to attract established area developers or will we need to “grow our own”?
AreaRepresentativeAgreementsareaformofsub-franchisemost frequentlyuseddomestically...
Advantages of an Area Representative Strategy
Rate of unit growth can be faster provided area representatives meet their sales commitments.
Regional training and ongoing support provided by area representatives lessens the need to develop the franchisor’s own support system.
Disadvantages of an Area Representative Strategy
Franchise fees and royalties are shared with area representatives.
The quality of training and ongoing support from one area representative to another can vary.
The franchisor may be liable for the actions of its area representatives, although they are not the franchisor's employees.
The franchisor may have to step in and provide support at a distance if an area representative leaves the system.
Fee splitting with a “middle-man.”
Issues with using Area Representative Strategy
Will we require the area representative to operate a unit?
What responsibilities will the AR have aside from sales?
How do we split fees and royalties?
Quality control at the unit level can be more difficult
Must structure the offering so it is compelling to both the Area Representative and the Franchisee
What is the franchisor’s economic trade-off for using this middle-man?
Questions to ask
Do we need to grow substantially faster to achieve our growth goals or to meet the demands of the marketplace?
Are unit level operations simple enough that we can delegate responsibilities to a middle-man without sacrificing value or quality control?
Is there enough margin in the operation to provide a good return to both the Area Representative and the franchisor, without starving the franchisee?
Theultimatedevelopmentstrategythatisadoptedshouldensurethat:
Approved candidates are capable and financially qualified to operate successful franchised locations.
Approved franchisees are capable and financially qualified.
The franchisor is able to support franchise owners effectively and at a reasonable cost.
Quality remains high.
Risk of litigation is minimized.
Chances of franchisee success is optimized.
The franchisor is able to meet its development goals.
Thedevelopmentstrategychosenshouldalsomatch thegoalsandvaluesofyourcompany. Justbecause asuccessfulcompetitorusesaparticularstrategy doesn’tmeanthatit’srightforyou.
Key Questions Regarding Your Business Structure:
Do the types of franchises we’re selling encourage optimum unitlevel performance?
Do the fees we charge cover our costs in all areas?
Are there provisions in our franchise agreement that we don’t execute against or enforce?
Is our franchise agreement up to date in terms of planning for future technology in our business?
Does our Item 7 investment range reflect reality?
Do our reporting requirements give us the data we need to adequately benchmark performance in our system?
Is our business structure flexible enough where it needs to be?
Do we have well written bylaws for our advisory council?
Franchise Fee Revenues
Royalty Revenue
Time Revenues
Losses
Break-Even Point Expenses
Franchise Fee
Associated Expenses
Match fee to service performed
Fee determination methods
◦ Cost plus
◦ Market comparables
◦ Positioning
◦ Financial analysis
Fees range from $5,000 to $150,000
Average fee: $25,000
Fee should not deter franchise sales
Initial fee is a minor profit center
Perhaps your single most important decision
Comparables is only step one of the analysis
o Should compare comparables on multiple fronts simultaneously
o Don’t look at royalties in a vacuum but in relation to the opportunity/value proposition
Financial modeling is essential to a proper analysis
o This starts with understanding support requirements
o Varies based on positioning, concept, structure, markets targeted, speed of growth, targeted franchisee, philosophy of the franchisor and many other factors
o Support requirements translate to required staffing and organizational structure
o Major elements of their cost structure – labor costs, space requirements, etc.
o This is the beginning of an appropriate “cost plus” modeling approach
Sensitivity analysis is the next step
o Subject the model to testing under altered assumptions
o “What if” modeling
Analysis of the value proposition – what do I get for my money?
Positioning in the marketplace
Reverse engineering franchisee ROI
Six key areas of evaluation:
Does your reporting structure align the right responsibilities?
Do your senior managers have a workable number of people reporting to them?
Are responsibilities in the organization clearly defined?
If you have company-owned operations, are they structured properly within your organization?
Does the organizational structure “fit” your leadership style as an owner?
Has your organizational structure evolved over time to fit the growing needs of your business?
Initial launch marketing
Local marketing requirement
Cooperative marketing
System marketing fund
Back-Room Support Fees
Technology Fees
Other Fees
External Value Proposition
“Howareweperceivedbyour franchiseecandidates?”
Relevancy of your concept today and in the years ahead
Equity of your consumer brand
Strength of your products and operations systems against your competitors
Strength of your franchise structure against your competitors
Overall marketability of your franchise opportunity
Organization
Adequacy of your organizational structure
Coverage of critical functional responsibilities
Staff capabilities and experience
Leadership performance
Staffing ratios
Compensation structures
Staff morale and group dynamics
Internal Value Proposition
“Howareweperceivedbyour franchisees?”
Franchisee profitability
Franchisee relationships
Quality of your store development processes
Quality of pre-opening support systems
Quality of ongoing support systems
Concept Development
• Brand management
• Product mix
• Service offering
Franchise Development
• Lead generation
• Franchise qualification
• Franchise sales
• Training
Franchise Support
Company Administration
• Field support
• Advisory councils
• Franchisee communications
• Human resources
• Accounting
• Legal
• Office facilities
• Research & development
• Quality assurance
• Technology
• Real estate
• Facility design
• Construction
• Marketing support
• Public relations
• Third party supply contracts
• Franchise compliance
• Insurance
Young Franchisor Established Franchisor
Hiring often limited by cash flow
Often little or no prior franchise experience on the management team
Managers hold a wide range of responsibilities
Founders need to focus on developing strong relationships with the initial group of franchisees
Goal should be to have a staff highly experienced in franchising
Experience from multiple franchise systems is desired
The initial management team hired needs to be hands on
Focus needs to be on the transition from founders to managers
Franchise Sales
Cost = (Lost Sales x NPVOF) – (Incremental Salary + Recruiting Fees)
Average Sales for Franchise Salesperson at Maturity
Experienced
Franchise Salesperson
Inexperienced Franchise Salesperson
The right staffing ratios for your company will depend on a variety of factors including:
The type of industry in which you operate
The complexity of your unit level operations
The speed at which your system is expanding
The geography over which you’re expanding
The types of franchises you are awarding
Your philosophy toward support
President/CEO
Human Resources
General Counsel Chief Financial Officer Chief Operating Officer Director of Purchasing Director of Marketing Director of Real Estate & Construction
Accounting Staff
Field Support Region 1
Franchisee & Company Operations
General Manager Operations
Marketing Staff
Implementation Planning and Support
Year One Hires
President/CEO Human Resources
General Counsel Chief Financial Officer Chief Operating Officer Director of Purchasing Director of Marketing Director of Franchising Director of Real Estate & Construction
Implementation Planning and Support
Year One Hires
Year Two Hires
General
Implementation Planning and Support
Year One Hires
Year Two Hires
Year Three Hires
Franchise development staff
Single unit focus = 1 for each 12-18 deals
Multi-unit focus = 1 for each 5-8 deals
Field support staff
Single unit restaurant = 1 for each 20-25 units
Multi-unit restaurant = 1 for each 10-15 owner groups
Territory-based service system = 1 for each 30-35 owner territories
Field marketing staff
1 for each 50 to 100 units/territories
Overall staff to franchised locations (within a mature organization)
1 staff equivalent for each 7 to 11 locations
Staff Morale and Group Dynamics
Good franchisors develop a loyal and happy staff by:
Leading by example within the office
Educating their staff on franchising
Setting clear responsibilities, goals and objectives
Giving staff the resources they need
Allowing staff to do their job
Communicating and interacting with staff regularly
“The secret to our success is to make sure the franchisees make a little more money each year.”
RayKroc McDonald’sFounder
Benchmarking franchisee profitability requires access to reliable and consistent information. Key measures include:
Net operating income
Net income before owner’s compensation
Sales to investment ratio in the first year
Overall return on investment after financing costs
Strong Relationships Yield Weak Relationships Yield
More committed operators who will follow-through on your vision
Better customer experiences across your system
Improved franchise sales as a result of great references being provided
Less litigation/arbitration
An enhanced ability to introduce changes into your system
An inability to move the system forward
A disproportionate amount of staff time dealing with unhappy franchisees
Greater cost of litigation or arbitration
A far less efficient franchise sales program
Lower morale for your staff
Franchisee Relationships
Common elements in systems having strong franchisee relationships: A strong corporate culture A system leader who is respected
Profitable franchisees
Highly active franchisee advisory council program
Strong and capable field support staff
Typical Approach to Councils
Council members elected by their peers
Council consists of 8-12 franchisees
Council meets with franchisor between 2 and 4 times per year
Problems With The Above Approach
Requires a small group of franchisees to properly represent the entire franchise system
Often challenging for the council to obtain input from other franchisees in the system
Lack of transparency to the system
Encourages negative franchisees to sit on the sidelines and ignore council-supported initiatives
Regional Advisory Councils
National Presidents’ Council
Multiple regions
Elected officers in each region
All franchisees attend meetings
Minutes taken by franchisor and made available to all franchisees in the system
Presidents of each regional council
Focus on higher-level strategic issues
Nine Primary Areas of Support
1. Lack of capital to provide adequate support, particularly in the early years of franchising
2. Hiring support staff that is under-qualified or given insufficient training and direction
3. Lack of operational experience by the franchisor
4. Failure to build the support program around the issues that are most important to franchisees
5. Failure to involve franchisees in key decisions
6. Failure to develop an effective change implementation process
7. The belief that technology can replace human contact
8. Failure by the franchisor to measure the results of its support efforts
9. Negative attitudes toward franchisees
10. Fear of losing control with either the support staff or franchisees
Real Estate
Lease
Negotiation
How refined is your real estate model?
How do you evaluate locations?
Who drives the site selection process?
Facility Design
How involved should you be as the franchisor?
Do your franchisees retain qualified real estate counsel?
Are your required lease inclusions appropriate?
Facility Construction
Are your design standards fully defined?
Have your construction standards been cost engineered?
Who selects the architect for each franchised location?
What options exist for construction?
Are you assisting franchisees in the bid process?
Are you benchmarking construction costs?
Pre-Opening Training:
Operations raining should focus on the quality of the customer experience
Who must attend training?
Length of the training course
Quality of course materials
Use of self-study or online course materials
Testing throughout the training process
Use of a certification program
Quality of Pre-Opening Support
On-site Training:
Goals for on-site training
Quality of the opening team
Agendas for on-site training
Assistance provided between the completion of construction and the first day of operation
Role of the on-site trainer
Monitoring the effectiveness of the on-site training process
Quality of Ongoing Support Systems
Field Consulting
•Qualifications of reps hired
•Compensation structure
•Ratio of reps to units
•Frequency of visits
•Routing efficiency
•Agendas for each visit
•Business planning tools
•Use of mystery shops
•Collection and dissemination of best practices
•Working with troubled franchisees
•Ongoing rep training
Marketing Support
•Local advertising support
•Co-op programs
•Public relations support
•Brand monitoring activities
•Quality of consumer marketing
•Consumer website
•Field marketing consulting
•Management of the system marketing fund
•Consumer testing/research
•Management of outside agency relationships
Single Unit Franchisee Multi-Unit Franchisee
Financial statement
basics
Expense controls
Best practice sharing
Sales training
How to manage a family business effectively
Strategies for local store marketing
Hiring good employees
Managing employees
Detailed business planning
Financial benchmarking
Planning for capital spending
Technology development
Multi-unit management training
Assistance with finance or lease programs
Input on key strategy issues impacting the brand
80%
Helping franchisees increase revenues and profits Compliance
Focus support around an annual business plan with each franchisee
Some level of standardization for franchisee accounting practices and income statement generation
Requirement that franchisees generate monthly financial statements
Technology available to capture and analyze income and expense information for the system
Field support staff who are capable as business consultants and trained in the franchisor’s process
The respect of your franchisees to provide value through the business planning process
Defined expectations and responsibilities for both franchisees and the franchisor company
Key steps in the planning process:
1. Create and continually refine the planning process with the input of your franchisees
2. Communicate the final process both internally and to your franchisees
3. Schedule an in-depth meeting with each franchisee to develop their plan for the coming year
4. Meet with franchisees at least quarterly to review progress to the plan and actions needed to address problem areas
5. Provide benchmarking data to franchisees throughout the year, allowing them to measure their own progress against the system as a whole
Business Planning With Your Franchisees
The planning process will vary based on the needs of each franchise system. In general, however, a franchisee’s plan will focus on areas such as: Marketing Budget
Local Marketing
Co-op Planning Support of Systemwide Initiates Tracking Marketing Performance
Operations Management
Revenue Goals
Cost of Goods
Operating Expenses
Overall Profitability
Capital Expenditures
Cash Budget
Operations Quality
Customer Feedback
Human Resources
Staff Levels
Training & Development
Compensation
Plan Turnover Targets
New Staff Hires
Facilities
Maintenance
Construction & Trade Dress
Updates
New Equipment
Technology & Software
Facility Lease Review
Communications
Franchisee Intranet
Newsletters
Seminars/conventions
Procedures for testing and introducing new products or services
Accumulating best practices
Disseminating best practices
Internal communications within the franchisor company
Tracking of communications with franchisees
Crisis management program Vendor Relations
Supply agreements
Distribution structure and related agreements
Advertising or public relations agencies
Legal counsel
Various third-party approved supplier programs
Auditing of supplier contracts
Quality assurance programs
Technology Compliance
Website
Intranet
POS and back office systems
Polling of POS and back office data
Integration with vendor technologies
Other telecommunications –cell phone, Internet, VoIP, etc.
Store security systems
State and federal franchise laws
Business opportunity and industry laws
Franchise sales process
Compliance with your obligations as the franchisor under the franchise agreement and operations manual
Franchisee compliance with your standards
Franchise transfer process
Insurance
Strategic Planning Best Practices Audit
Process should be completed annually.
Focuses on corporate vision, strategies and tactics.
Primary focus is internal.
External focus concentrates on competitive threats.
Entire company should be involved in the process.
Tied to your development and support budget.
Should be completed every 3-5 years.
Both an internal and external focus.
External focus looks at your value proposition compared to your competitors.
Internal focus on efficiency and results of tactics employed.
Measures the overall value proposition of your company as a franchisor.
Franchising is a means of duplicating success, not creating success
Thrives by creating win-win situations
You must be selective
Franchising is a new and different business
Is not the right solution for every business
Provides one of the most powerful business expansion models ever developed
