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.
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:
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.