Franchise Sales

Global Franchise Magazine: How strong franchisee relationships bolster franchise development

By | Franchise Sales, News, Partners
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We are pleased to have our Sr. Marketing Director, Stefania Sigurdson Forbes featured in Global Franchise Magazine.

Article: How strong franchisee relationships bolster franchise development

Advocating collaboration and creativity across your franchise network can not only produce results but a more productive environment among your organization

Traditionally, franchise development and franchise operations had a certain degree of separation between them. There was a permeable wall between the two, ensuring that they could both do business without getting in each other’s way.

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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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Sell more franchises with these tips

By | Franchise Sales

Most franchises want to grow. Some of our clients only want to open a few new locations next year. Others have been growing consistently by 20% every year. Some even have the great ambition of doubling in size next year. The whole franchise model is predicated on growth.

So what can you do to sell more franchises?

Follow these three tips:

  1. Improve unit-level economics
  2. Improve franchisee engagement
  3. Improve brand consistency

Easy, right? Hah – not so much. All three of these are long term initiatives to continuously improve performance. If you want easy: hire a great closer or give lavish commissions to franchise consultants and push your franchise onto anyone who can write you a check. However, that’s a horrible idea as it isn’t sustainable: your locations will close and you will fail.

Replicability AND sustainability are the keys of the franchise business model. Achieve those and you’ll be able to switch to a franchisee recruitment philosophy instead of a sales philosophy. Screen for culture fit and make decisions based on quality rather than quantity. Using this strategy will accelerate the virtuous cycle you put in place with continuous franchise improvement.

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