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When discussing franchise development best practices at events
such as the recent Franchise Update Leadership & Development
Conference and IFA Conference, you hear franchise professionals
throw around terms such as “franchise sales,” “franchise
development,” and “franchisee recruitment.”
If you were to examine their core philosophy on how to best expand
a franchise network, you would find professionals seem to fall
into two separate and distinct camps: Recruitment and Sales. Both
parties maintain their philosophies are superior to the other.
Sales seems to be the dominant philosophy of the moment.
In this blog we distinguish the differences between these philosophies,
and see which philosophy produces the best results and is most
consistent with the long-term, best interest of franchisors and
franchisees.
Recruitment Philosophy
- Franchisor selects only those candidates who both match the
franchisor’s profile of successful franchisees and whose
objectives can be met with a high degree of probability using
the franchisor’s business model.
- Franchisor focuses on whether or not candidates are a match
for both the business and corporate culture.
- Franchisor focuses on recruiting quality franchisees.
- Franchisor seeks to eliminate potential failures by either
denying marginal candidates a franchise or having a plan to
mitigate both candidates’ and franchisor’s risk.
Sales Philosophy
- Franchisor sells franchises to all candidates who demonstrate
a willingness and financial ability to purchase one.
- Franchisor focuses on whether or not the candidates will buy
the franchise.
- Franchisor focuses on recruiting a quantity of franchisees.
Franchisor seeks to maximize growth by accepting marginal candidates
and turning a blind eye to additional risk.
Which philosophy makes the most business sense?
To answer this, you have to believe that being a franchisor is
a business unto itself. In the business of franchising, franchisors
typically generate revenue in either two or more of the following
ways:
- Franchise fees
- Royalties (continuing fees)
- Product purchases
- Ancillary fees (technology fees, marketing fees, transfer
fees, etc.)
When asked “Which of these revenue streams are most important?”
most franchisors would indicate “royalties” or (with
some franchisors) “product purchases.” In other words,
franchisors are in it for the recurring revenue streams, however
these streams are generated.
Therefore franchisors are ultimately all in the same business:
recurring revenue collections.
Now think about which franchisees make the greatest recurring
revenue contributions. Aren’t these the most successful
franchisees?
Then think about which franchisees consume the greatest amount
of the franchisor’s time, money, and energy. Aren’t
these the least successful franchisees?
Last, think about which franchisees subsidize the time, money,
and energy franchisors spend with the least successful franchisees.
Again, aren’t these the most successful franchisees?
Successful franchisees pay the most, consume the least, and validate
the concept the best to franchise candidates. They are both the
franchisor’s high-margin repeat customer base and ambassadors
for the brand.
Conversely, unsuccessful franchisees pay in the least, consume
the most, and validate the worst. They offer the franchisor a
low margin at best, or if the franchisor costs it out they may
actually be losing money. Not all recurring revenue dollars have
the same margin. Not all franchisees are ambassadors to the brand.
Franchisors with a franchisee recruitment process are more likely
to identify and screen out potential weaker performers than those
managing a franchise sales process.
WINNER: RECRUITMENT
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STOP
SELLING AND START RECRUITING
