Monthly Archives

June 2017

Franchise Field Audit Benchmarks

By | Audits / Brand Consistency

Franchise Field Audit Benchmarks

We’ve previously discussed how our franchise field audit app is a massive improvement over using paper or spreadsheets to perform franchisee field audits. We’ve seen hundreds of franchise field audit questionnaires and have been able to establish certain benchmarks:

Frequency: On average, the coach visits franchisees once a quarter.

  • The frequency decreases as the average revenue per franchisee decreases, regardless of the type of unit. Restaurant snack kiosks and smaller brick & mortar retail/service visit once a year. Mobile service brands visit once ever 1-3 years, if at all (and do remote audits instead).
  • The frequency increases if the stores have geographic density. If a coach can easily drive to all locations, they may visit monthly.
  • Multi-unit operators (franchisees) who also utilize our software visit more frequently, sometimes weekly.

Franchisee ratio: On average, each FBC coaches 30 franchisees.

  • This often means 30 units but the better way to describe it is 30 relationships. In systems with a high density of multi-unit franchisees, the coach can oversee a larger set of units.
  • Unit-level economics can also impact this benchmark. If the coach visits once a year because it’s the only financially viable option, the ratio will often jump to 60 or even 100 franchisees per coach. The coach is effectively spending less time with each franchisee.
  • Multi-unit operators (franchisees) typically have their district managers be responsible for 6 locations.

Questionnaire count: On average, each franchise uses six audit questionnaires, not two.

  • Most franchises believe that they have a long form audit questionnaire, performed once a year, and a short form performed during every other visit. However, the average FranchiseBlast user has six active questionnaires, indicating that they find new uses for our app after they have begun using it.
  • The other audits are typically store opening checklists or specific audits around the most recent marketing campaign or food safety.

Percentage passing: On average, 80% of audits pass

  • Our data shows exactly 79.25%. For a franchise coaching process, this is a good ratio of difficulty without being discouraging.
  • We have restructured the questionnaires of franchises with a very high ratio of passed audits to bring them closer to reality. No one is perfect and when 95% pass, the bar is too low.
  • Only 61% of food safety audits pass, even though the average score is over 90%. Being flawless in food safety is very difficult. The criticality of issues generates a higher ratio of failures.

Duration: On average, two thirds of long form audits are completed within 3 hours.

  • 48.5% of the audits completed on our system are done within an hour, but these include short form audits
  • 85% of long form audits completed on the same day are finished within 5 hours.

We hope you found the aforementioned benchmarks interesting. If you have a specific question, please don’t hesitate to reach out!

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The 7 stages of franchise coaching

By | Franchise Best Practices

Fotolia_124621642_M_1200x628Over the years, thanks to our franchisee field audit app, we have seen how countless franchises manage the franchisee coaching process. This article will give you some perspective on how you compare to other franchises and some actionable insights to get to the next level.

Here are the seven stages:

  1. Reactive
  2. Recurring conversations
  3. Recurring structured conversations
  4. Guided conversations
  5. Benchmarking
  6. Operational efficiency
  7. Predictive analytics

Let’s now drill down into these stages!

Stage 1: Reactive

Franchises typically start out in a reactive mode, simply waiting for franchisees to reach out when they have issues.

  • This is most common: in emerging franchises or legacy franchises
  • Areas of improvement: being reactive is indicative of giving poor support to your franchisees, negatively impacting unit-level economics, franchisee engagement and, worst of all, brand consistency. Franchisees typically call when it’s too late to act.
  • Actionable insight: you must be proactive in today’s franchise market. Start by scheduling quarterly calls or visits with your franchisees to begin conversations about what you can do to help.

Stage 2: Recurring conversations

Franchises naturally evolve into recurring field visits and/or calls with their franchisees. At this stage, the conversations are often unstructured and guided by the franchisee. The conversations may be brief and in-person visits may focus more on compliance than coaching.

  • This is most common: in mobile service franchises, other systems with lower average unit sales, emerging franchises
  • Areas of improvement: while the franchisee is given the opportunity to speak up on a recurring basis, franchisees are typically stuck in operations and haven’t had time to properly think through where they need help. The topics will often revolve around symptoms instead of root causes. Some may even choose to avoid talking about certain harder topics.
  • Actionable insight: after having had enough of these conversations, you’ll have an idea of the common subjects. Start by creating a checklist of all the subjects you want to discuss during a visit, painting a holistic picture of the franchisee’s business (sales, operations, finance, HR, etc.) and breaking these down into subtopics (local store marketing spend, etc.)

Stage 3: Recurring structured conversations

Once a structured checklist of topics is put on paper, it becomes the driver of the conversation. All subjects are discussed and the feedback given to the franchisee becomes more meaningful.

  • This is most common: in service franchises and some retail franchises
  • Areas of improvement: at this stage, one typically finds tremendous variances between franchise business coaches. Given the free-form nature of the checklist, each subject is addressed but the coaches may give wildly differing action plans to the franchisee.
  • Actionable insights: Ensure your coaches record their interactions with franchisees, specifically focusing on listing out common issues and the proposed solutions. Set up monthly alignment calls with all coaches so that they can share what they are hearing in the field and the solutions that they are proposing. Start documenting the collective insights and sharing them back with franchisees.
  • Pro-tip: Between your quarterly or annual visits, schedule calls to discuss one specific topic (ex: local store marketing) at a time. Give the franchisee time to prepare/research in order to make the call more impactful and drill deeper into the subject. Look at their key performance metrics (or have them share them) ahead of time.

Stage 4: Guided conversations

Once franchises have developed a common knowledge base with the help of their field team, they are in a position to start defining the franchise’s recommended solution for each issue. Instead of asking did you post on social media last month, they start asking (and recording) how many posts were made. It is at this stage where the field team starts validating their assumptions with data, by correlating strategies with concrete data available in P&Ls and operational systems.

  • This is most common: in restaurant franchises, in more forward-thinking service franchises
  • Areas of improvement: this is the stage where recommendations start being made based on facts and concrete data instead of opinions. However, data at this stage is sometimes limited (either in the number of metrics or the frequency of collection), not aggregated and thus harder than it should be for the coach to access timely information in order to make the biggest impact.
  • Actionable insight: invest in tools to facilitate the gathering of information from your franchisees and aggregating that data.
  • Pro-tip: automate as much of the collection as you can, but don’t go overboard. Focus on the dozen or so key metrics which are most impactful on performance. It’s okay to have some manual processes in place for some metrics.
  • Shameless plug: We have developed tools to semi-automate the collection of franchisee financials when it is impossible for you to connect to their accounting systems.

“Most franchises today are at stage 3 or 4, depending on their business model. They have integrated some benchmarking into their business, but are not necessarily fully leveraging its power to improve unit-level economics and franchisee engagement. “ 

Stage 5: Benchmarking

Once franchises have franchisee data at their fingertips, benchmarking becomes much more prevalent (and easy!). Questions become very precise: are your food costs within 1% of the franchise average? It becomes easy for the franchise business coach to focus on specific issues to drive profitability.

  • This is most common: in established restaurant franchises
  • Areas of improvement: although data is now accessible, it often becomes overwhelming. There are so many sources of data now accessible, the coach and franchisee sometimes are unsure of what to focus on. Benchmarked P&Ls are a goldmine of information, but they are not actionable for those without a background in accounting or finance.
  • Actionable insight: develop a franchisee scorecard that is simple to understand, annotated with leaderboard information (how the franchisee ranks) and make it very easy to determine which weaknesses to work on next (making it actionable)
  • Pro-tip: Try not to exceed a dozen key performance indicators in your franchisee scorecard.

Stage 6: Operational efficiency

Once information is collected, benchmarked and automatically transformed into easy to understand scorecards, franchises can begin working on improving the workflow at various levels. For example, they integrate the scorecards into the field auditing process or automate alerts up the chain when certain thresholds are not met.

  • This is most common: in sophisticated restaurant franchises
  • Areas of improvement: As the coaches’ work has been partially automated, the danger at this stage is to rely too much on automation to cut costs rather than allowing the coach to leverage this time to be more impactful with their expertise.
  • Actionable insight: find new ways to get creative insights on how to improve the franchise, outside of the rigid framework you have created.
  • Pro-tip: we have seen some systems create teams of franchisees where each franchisee visits four other ones and discusses areas of improvement. As the information comes from knowledgeable peers, franchisee engagement goes through the roof.

Stage 7: Predictive analytics

At this final stage, franchises try to predict issues before they happen by mining their data. A great example for restaurant franchises is trying to predict which stores are more likely to have a food safety issue, enabling them to allocate resources efficiently while keeping the public safe. Predicting the future is incredibly difficult; few franchisors are at this stage but the advances in artificial intelligence and big data show promise.

  • This is most common: research & development labs; not common
  • Areas of improvement: predicting the future is not always accurate, one must constantly work on improving the algorithms
  • Actionable insight: increase the granularity of your data, for example, moving from monthly sales to daily sales.
  • Pro-tip: talk to us! We’re looking to collaborate with forward-thinking franchises in our research & development on this topic.


Franchises should not get discouraged if they are in an earlier stage than they would like. We have observed restaurant franchises that are typically further along in the process because of the quantity of comparable data in their respective industries, driven by the availability of powerful software tools in this space. We have also found that many service franchises, although not as far along with regards to automation of the coaching process, have established better processes with regards to the franchisee-franchisor relationship. From our vantage point, we see the best of both worlds, and can appreciate how improving unit-level economics and franchisee engagement are key drivers of franchise growth.


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Which Franchise CRM is best for you?

By | Franchise Sales

Blocks for Customer-Managed Relationship ConceptAssuming you’ve decided to adopt a Customer Relationship Management (CRM) solution in your franchise (or replace your existing solution), the purpose of this article is to help you select the franchise CRM that is a best fit for your organization.

Before we begin, let us recap the findings of our recent article on franchise development:

  • On average, franchise development teams are fairly small (3 people)
  • On average, franchisors only sign a handful of deals each year (7 deals)
  • The franchise development process is similar to the sales process in other industries where a long term relationship is established around a recurring revenue stream of similar magnitude ($25,000 to $100,000 per year).

But wait a minute – we just dove into franchise development without actually specifying if that’s actually the core process we’re trying to improve! Many people equate franchise CRM to the tools used by the franchise development team to award new units but there are, in fact, many types of franchise CRMs.

Which type of CRM are we looking for?

There are three main types of CRMs to be discussed in the context of a franchise system. Most franchise systems need only two but service franchises typically utilize a third type.

  1. A franchise sales CRM with the goal of narrowing down the hundreds or thousands of candidates to those who are awarded franchises.
  2. An operational CRM helping your organization manage the franchisee’s launch, keeping track of franchisee information, important contract renewal dates and, more importantly, enabling your operations team to work hand-in-hand with your franchisees to improve performance.
  3. The franchisees of a service-based franchise also utilize a CRM to manage their own sales/operations and their customer base. In a retail or restaurant environment, they utilize a point of sale system instead (perhaps augmented with a loyalty program).

In the next sections, we’ll cover the important characteristics of each type of CRM.

Important features in the franchisor’s sales CRM

The goal of the franchisor sales CRM is to assist the franchise development team in awarding new units. As we discussed in our previous article, this CRM is used by a limited number of people closing a limited number of deals per year. An interesting rule-of-thumb known by franchise development professionals is that franchisors typically convert only 1% of their inbound leads into franchisees. This implies that even if we sign only 7 deals this year, we’ll have evaluated around 700 candidates in a year. Without going into details about franchise development best practices, here are some important features to look for in your franchise sales CRM:

  • Ease of importing leads from various sources (your website, franchise portals, franchise brokers, etc.) into your CRM
  • Ease of use in moving candidates from one stage to another
  • Supporting the creation of tasks on every candidate, to ensure your development team can proactively manage the cycle and nothing falls through the cracks
  • Ability to integrate with email marketing tools
  • Ability to request information from franchisees at different stages in the process, storing this information within the CRM
  • Ability to record notes within the context of each prospect

In essence, these are fundamentals of any sales CRM, precisely because the attributes of the franchise development process are similar in nature to the standard sales processes used by many organizations. Although a critical phase in the franchisee’s lifecycle, the 3 to 12 months you’ll spend exchanging with a potential franchisee before you award them a franchise pales in comparison to the 10, 15, 20 or more years they will spend in your system. The franchisee selection phase is a completely different beast than helping your franchisee grow over the next 20 years and, as such, that’s why we have separated out the franchisor’s operational CRM.

Important features in the franchisor’s operational CRM

The goal of the franchisor’s operational CRM is to manage the relationship with existing franchisees. It is typically used by the operations team (including the franchisee’s field coach), the legal team (to track legal agreements) and the franchise executives. As the development team is often involved in the franchisee’s launch, they are also typically involved as they assist in that process and eventually hand off the franchisee to operations.

As mentioned above, the franchisor’s sales CRM and operational CRM both have different purposes. The operational CRM will follow the franchisee during a much larger portion of their journey. Furthermore, improving unit-level economics is the key driver behind sustainable growth. The operational CRM thus can indirectly help you grow faster by increasing the appeal of your business model. Finally, the rise of the multi-unit owner implies a large portion of your future growth will come from within, decreasing the importance of the sales CRM. Over 75% of all franchise restaurants are now owned by multi-unit operators.

As a franchise grows, we’ve seen how the number of users in operations will grow proportionally whereas the number of users in development will typically remain almost constant. These dynamics cause the following features to be more important in the franchisor’s operational CRM:

  • Ease of use by the franchisees (as franchisee engagement is a critical driver of franchise growth)
  • Ease of use by the operations team in their quest to improve unit-level economics
  • Capacity to aggregate information from multiple data sources (point of sale or franchisee CRM, accounting packages, customer satisfaction modules, etc.)
  • Capability to derive actionable insights from the aforementioned information

You’ll notice this set of features is quite different from the features required in the sales CRM. You’re not pushing candidates through a process, we’re working the relationship on a recurring basis. The operational CRM is often simply called your franchise management system.

An important realization is that an emerging franchisor with say 50 locations will have a franchise development team that is of similar size to the operations team. However, once the franchise grows to an average of 275 locations, the operations team may be five times bigger than the development team. As such, needs will shift over time and, in the case where the same software is used for both tasks, the needs of both teams should be weighted accordingly.

Important features of the franchisee’s CRM

The goal of the CRM used by the franchisee is to help them convert prospects into customers and manage the ongoing relationship. Because the needs and processes vary drastically per industry, it is difficult to define the most important features of the franchisee’s CRM.

As an example, a franchise system where the franchisee is continuously cold calling local businesses to land printing contracts will have completely different needs than a locksmith franchise, which generates business via online ads to be performed by local technicians or the needs of a child education centre.

Still, in all cases the franchisee-level operations will require industry-specific software to help them run the business (point of sale, class management software, job management tools). Although these are focused on operations, most will include a simple sales CRM component. In cases where the sales component is the key aspect of the business (ex: cold calling), this function is typically separated from the operational software. (A print shop will have industry-specific operational tools to design graphics and manage printers separated out from their sales CRM.)

The most important features are thus:

  • Be adapted to your industry, ensuring ease of use and efficient execution
  • Capacity to easily export data to other systems, such as the franchisor’s operational CRM or accounting systems.
  • Support aggregation of operational data (sales, jobs and other key performance metrics) across locations

Do you need a sales CRM built specifically for franchises?

We have shown that franchise development teams are relatively small, that they don’t close that many deals per year, that the franchise development process isn’t really unique and that your sales CRM is not as important as your operational CRM.

Because of these characteristics, we believe that you should use a best-of-breed sales CRM built for a broader market (there are over 164,000 people with the title inside sales representatives title on LinkedIn) instead of a franchise-specific CRM built for the 4,500 people in franchise development (according to LinkedIn). A best-of-breed sales CRM will offer higher quality features and more diverse integrations, at a fraction of the cost.

The logic is different for the operational CRM, where the software is designed to help improve performance across a potential market of over 800,000 establishments in the USA alone, with a very specialized set of needs. A best-of-breed CRM will be weaker in this context because it is simply too generic for this process without endless customizations, as easily observable when considering the 800 pound gorilla in the CRM space.

The leader in the CRM market is SalesForce. According to this article based on public financials, SalesForce had 150,000 customers, averaging 25 users per customer, two years ago. They have grown since, but this means they had roughly 3,750,000 users in 2015. A handful of franchise systems utilize SalesForce with varying levels of satisfaction. The main issue with SalesForce is that it needs to cater to such a broad market of diverse organizations (from finance, to big pharma, to automobile, etc.) that it becomes too generic and loses in simplicity and ease of use. The platform can be tailored to do anything (at a heavy cost) but it is primarily overkill for a franchisor’s three person development team. Even if you load up all your franchisees and leverage SalesForce as your operational CRM, functionality will be proportional to your budget. It is likely that SalesForce will simply be a repository of information rather than a tool utilized by your operations team to drive growth.

We believe that there are lightweight best-of-breed sales CRMs which are a great fit for franchise organizations. These franchise sales CRMs play nicely with our franchise management system, built from the ground up around the goal of improving franchisee performance. Contact us if you’d like to learn more about either solution.

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Facts (and a myth!) about franchise development

By | Franchise Sales

Fotolia_139616127_smIf you’ve attended the International Franchise Association convention, you’ve probably noticed how a surprisingly large portion of the attendance is in franchise development. We were curious to learn more about this critical role in franchise growth. This article presents some of our findings.

Quick side note on terminology: in the franchise world, the franchise development team does not sell franchises, they recruit franchisees and award franchises. This terminology better represents the relationship the new franchisee will have within the system as a whole. We strongly believe that a franchisor should find the candidate that is a perfect fit for their system in the long run, rather than selling units on a first come first served basis. However, it’s no secret that franchise development is a sales position. As such, we will use the terms franchise sales and franchise development interchangeably in this article.

Fact: Franchise sales teams are relatively small.

Anecdotally, we asked a few friends about the size of their franchise development teams:

  • 250 locations: three people in franchise development
  • 400 locations, half corporate: two people
  • 325 locations, opened up 90 units the past year: three people
  • 1,200 locations: usually four people but one quit six months ago and hasn’t been replaced

According to FRANdata, there are over 3,000 franchise systems in the United States. Some claim that there are actually up to 6,000 franchise systems in the United States when you include small corporate chains jumping in and out of franchising every year, but 3,000 gives us a rough order of magnitude.

On LinkedIn, the popular professional social networking site, searching for people with franchise development in their title reveals approximately 4,500 people in franchise development worldwide, with 2,800 of them being in the United States. In the USA, under 1,800 people have a title associated with franchise sales (although this includes some of the same franchise development people). If we are generous and account for the people not on LinkedIn and the CEOs who participate in franchise development in emerging franchisors, we still end up with roughly three people in sales per franchise system.

Compared to the operations team, the development team is much smaller. Although results vary based on geography and proportion of multi-unit operators, most franchises utilizing our franchise field audits app average 30 locations per franchise coach. Although both teams are similarly sized in an emerging concept, this ratio implies that in an average 270 location franchise, there will be three times as many franchise business coaches as people in franchise development.

An average of three salespeople is small compared to most sales teams. I would not be surprised that most franchisees selling B2B services have comparable sales teams to that of their franchisor. Admittedly, LinkedIn counts is an unscientific approach; let’s look at some concrete data.

Fact: Franchises are not signing that many deals every year

In a recent study about the economic impact of franchised businesses published on the International Franchise Association’s website, franchised businesses operated over 801,000 establishments in the United States in 2016. Franchising has a huge impact on the economy. If there are 3,000 different franchise systems in the USA, this implies an average of 267 units (or less in certain verticals, if we remove anomalies like Subway with over 25,000 domestic units).

In an analysis performed that same year, FRANdata and the Franchise Performance Group estimate that there are between 14,000 and 20,000 people who invest in new franchises every year  This may seem like a lot of deals, but this implies less than 2.5% in unit growth. More importantly, this averages out to under 7 units sold per franchise system. Obviously, some systems are growing much more rapidly and others are shrinking, but the average is less than a deal per month!

Even in systems growing at the mind boggling rate of 50%, the average franchise mentioned above with 267 locations would close 134 deals during that year, or just over 11 per month. That growth rate is very hard to sustain operationally, but the absolute number of deals signed is tiny in the broader scheme of things. Your local car dealership sells more cars than that!

Astute readers will rightfully assert that the franchise sales process is completely different than selling cars. Let’s dive into this.

Fact: Franchise development is not transactional

You can’t compare awarding a franchise with the sale of a car, as selling a car is transaction in nature. The seller and buyer are not embarking on a journey together. The seller is incentivized to close the deal immediately without considering if the car is an adequate long term choice for the buyer.

It is indeed more like the recruitment process: you need to work with the people you select. Using our example above, making 134 sales in a year may not seem like a big number, but hiring 134 people in a year is an analogy which gives us more perspective.

Additionally, the relationship you are building includes a financial component, just like the people you hire. This financial relationship can be quantified.

Investigating further, the report on the economic impact of franchised businesses reports over 674 billion in economic output (sales) across 732,842 locations, an average of $920,000 per location. In the quick service restaurant segment, the average revenue per location is higher at $1,190,000. For discussion purposes, round off to a million dollars average revenue per location.

Franchisors typically charge royalties based on sales. The royalty rates vary per industry (see one and two) and average 6.7%. However, restaurant royalty rates are lower (average of 4.47%). Let’s assume a common 5% royalty rate to keep it simple.

As such, our example franchisee will pay an average of $50,000 to the franchisor annually, which is vastly different than selling a car to an individual for a $30,000 one time fee.

In general, the relationship between the franchisee and the franchisor can be compared to a $25,000 to $100,000 per year sale or hire.

Curious realization: franchising is surprisingly similar to SaaS

When trying to find a proper comparable to the franchise recruitment process, we’re looking for this type of situation:

  • The buyer embarks on a long term journey with the seller
  • The relationship is based on a recurring revenue stream, rather than a one-time fee
  • The relationship is roughly quantifiable as between $25,000 and $100,000 annually

Given my own background, an obvious comparable comes to mind: Software-as-a-Service (SaaS) companies selling their software to businesses (B2B). The core principle behind SaaS is that the software provider will begin a long term relationship with its customers, offering its software in exchange for a recurring revenue stream. Initial setup fees exists but they normally are not material in the bigger picture. There are thousands of SaaS companies for which the annual contract value (ACV) is of similar size to that of the royalty stream. For example, this study of 303 SaaS companies showed 46% of companies with an ACV over $25,000. Software-as-a-service is also just a subset of the broader software market, many of whom sell software with a long-term maintenance agreement of comparable magnitude.

What’s interesting about this comparable is that a similar sales process is employed in tens of thousands of software companies every day, by hundreds of thousands of sales professionals. This comparable is an order of magnitude bigger than the franchise development market and can teach us some interesting insights.

Curiously, there are many other similarities which can be drawn between franchising and Software-as-a-Service:

  • director of franchise development compensation aligns with inside sales manager compensation: similar average deal sizes imply similar compensation structures
  • franchise business coaches are similar to customer success representatives: both are aligned with ensuring success and reducing churn
  • multi-unit operators as a growth strategy resembles upselling software: it’s much more capital efficient than acquiring new customers

There are also striking differences, mainly around team size. Software companies proportionally employ more salespeople than franchises. Is this due to reaching market saturation more quickly or an untapped opportunity for growth?

Myth: Franchise development is unique

Franchising obviously has its unique characteristics but overall, it is not a unique discipline. Franchise development is a relatively small space which can learn best practices from employee recruitment, SaaS sales and countless other domains.

There is nothing truly unique about franchise development; it’s just a process like any other. Software companies might not have an FTC requirement to send out a Franchise Disclosure Document or to have an Item 23 signed and returned, but they will surely send over supporting documentation and require electronic signatures, just as salespeople in the finance space must comply with numerous regulations.

In conclusion, the challenges faced by franchise development teams have been faced by countless other sales teams in various larger verticals. Franchise development teams do not only benefit from the lessons learned in these other verticals but also the software tools they utilize on a daily basis. More on this in a future article!


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