How to recruit franchisees: 5 questions answered

With the wealth of lead-generation media competing for a franchisor's franchisee recruitment budget, Roy Seaman offers his advice on developing an effective growth strategy

Here is a question we received from a franchisor seeking advice and guidance from Franchise Development Services. If you are considering franchising your business, their challenges may reflect your own:

How can some franchisors succeed in selling their franchise package when they are charging more than twice the price of our low-cost franchise? They appear to be succeeding at regular growth rates, while we are now in year two and beginning to struggle to achieve our target of 20 sales a year, after we invested over £40,000 with an advertising and PR company. What's your advice?

The franchisor is asking five questions:

Question 1: Is a low-cost franchise a good idea?

There are 21 key areas of a franchise package that need to be evaluated and costed. Your franchise package must then be calculated to cover exactly what it is going to cost you to deliver - no more because unless you are one of the estimated 25 per cent of franchisors who have little or no interest in supporting their franchisees after the initial two weeks (or less) of training, why should you profit from the sale of your franchise? No less because it will cost your company additional money (more than you have received from your franchisees) to support, train, motivate and help them achieve the projected sales for year one. If they fall short in year one, you will need to help to fund them in year two as well - that is, if you are going to last that long.

Many franchisors that get their initial offering wrong cease to trade and liquidate in year two or three having realised their mistakes. In franchising there are no 'spare profits' or extra money lying around - every penny needs to be accurately accounted for. The challenge is not just getting the costing of your initial offer correct, it is understanding what the costs will relate to and where these are genuine benefits.

Question 2: How can competitors justify charging twice our price?

Most franchise investors are prepared to pay extra to receive something that they feel comfortable with. Therefore it is far better to slightly overcharge for your package and then do your best to over-deliver in every area.

When you analyse any franchise sector it is either the most expensive or the cheapest that fail. The most expensive probably could not justify their price, while the cheapest either couldn't cover the costs of supporting their franchisees or prospective franchisees felt uncomfortable about their ability to deliver for the costs being quoted.

Question 3: How can you succeed at recruiting franchisees on a regular monthly basis?

Your competitors may be succeeding by awarding their franchises to those that meet their criteria, while you may be failing by trying to sell your franchises to everyone that comes along. The key is to have a regular flow of weekly, high calibre prospects contacting your office and set aside one day a month to receive them and explain your opportunity.

Keep in mind that they will be evaluating you as you should evaluate them. Don't interview prospects on a one-to-one basis and immediately endeavour to 'sell' them into your opportunity. It is far better to meet with all of your prospective franchisees at the same time and then from those gathered select the people that you would really like to have on-board.

Question 4: How can we meet our franchisee recruitment targets?

Forget the idea of selling 20 franchises a year - a franchise is never 'sold'. You award your franchise only to those people that meet your pre-determined criteria. Think this through carefully and examine the essential qualifications that all your future franchisees will need, then list the preferred skills you're seeking. Essential skills may include the ability to explain and sell your product or service, or an understanding of your particular business sector.

At present there is a shortage of well thought out, genuine business format franchises. There are quality franchisees readily available with funds and ability looking for the type of franchise that you offer, so why are they not responding to your advertisements? The answer must be that they are not reading the media that you are advertising in.

Question 5: How do I ensure I'm committing my recruitment budget to the right media?

Many franchisors prefer not to farm out decisions on how their money is spent to advertising and PR companies. Your franchisee recruitment campaign will be by far your biggest expenditure until such time as your network is around 70 per cent complete, so it is important to keep control of it.

The 2006 NatWest/British Franchise Association UK Franchise Survey reveals that franchisors launching in the last four years spent an average of £166,000 to launch in the UK. Recruitment, advertising and marketing combined cost an average of £37,000.

There are about 50 different ways in which you can spend your money in trying to recruit franchisees. These vary from franchise and business opportunity magazines such as The Franchise Magazine, national newspapers, franchise and business start-up exhibitions, websites and franchise brokers who will often charge you a monthly retention plus a commission on each franchise sold.

The survey reports that the biggest initial sources of information about the franchise industry and a specific franchisor (see Table, above) are 'magazines', followed by 'friends/relatives', 'newspapers', then 'exhibitions'. With a limited budget, you must determine which media is likely to provide the most cost-effective returns in terms of quantity and quality prospects. You should then begin to recruit to your pre-determined levels. Provided that you are offering a genuine business format franchise, the answer is probably in front of you!'

Roy Seaman is Managing Director of Franchise Development Services, a franchise consultancy (and publisher of The Franchise Magazine) which has been assisting in the development of franchises around the world for 25 years. To find out more about the company, and order a copy of The FDS Guide to Successfully Franchising your Business, call 01603 620 301 or visit www.franchise-group.com