In Franchise Your Business, author and franchise consultant Mark Siebert delivers the ultimate how-to guide to employing one of the greatest growth strategies ever -- franchising. Siebert shares decades of experience, insights, and practical advice to help grow your business exponentially through franchising while avoiding the pitfalls. In this edited excerpt, Siebert explains the three ways you can use to sell your franchise units.
When it comes to franchise sales, there are several approaches you can take as a new franchisor. You can elect to sell franchises yourself, hire an industry professional, or outsource your sales. Like many business decisions, there are no definitive right and wrong answers, but instead advantages and disadvantages to each strategy, which I've outlined below.
The alternative chosen by most new franchisors, at least in the beginning, is to take the responsibility for franchise sales themselves. This has several key advantages:
- It allows new franchisors to gain a firsthand understanding of the franchise sales process and develop it as a core competency of the new organization. Should an outside sales professional be hired in the future, a franchisor’s experience in selling franchises will make it better equipped to manage the new hire.
- It allows new franchisors to keep their initial out-of-pocket costs to a minimum.
With little or no validation from existing franchisees, many early candidates will base their decision on their trust of and respect for the franchise’s founder. If the founder is actively involved in the sales process, the candidate will have a better opportunity to get to know them and their vision for the future.
In adopting a DIY strategy, franchisors don't need to spend time interviewing and hiring staff and don't run the risk of staff turnover. It allows them to grow more conservatively -- other alternatives, with their associated increases in overhead, typically fund that overhead by selling more aggressively.
Another key advantage of this strategy is in the logistics of a rollout. On your first day as a new franchisor, you don't have any (or very many) franchise sales leads. If your launch plan is based on selling one franchise per month, your marketing only needs to get you about 50 leads per month. And it takes between 12 and 14 weeks to close a franchise sale, so when you get started, you'll only need to make a couple of calls per day (plus some follow-up calls with qualified prospects). So initially, most new franchisors simply don't need a full-time franchise sales resource.
Of course, the DIY strategy may not suit your particular skill set, and you may lose sales as a result. Moreover, it may divert your efforts from your core business (and from the support and service you'd otherwise provide franchisees), potentially causing you harm in the long run. For these reasons, the DIY strategy is often viewed as a short-term alternative when initiating a franchise program.
Alternatively, the new franchisor can attempt to train an existing staff member with no prior franchise sales experience. That may lower incremental expenses, but it can also distract your internal staff from their current duties, so this version of the strategy has some of the same disadvantages.
If that staffer doesn't work out, not only does the franchisor have to find another salesperson, but it's also likely that much of the franchise marketing done over that time has been wasted. The franchisor must hope it can fill the position quickly before its current leads go bad.
2. The Franchise Sales Professional
Hiring a franchise sales professional can be the next logical step for some franchisors. If the salesperson has a track record of success, you'll benefit from the experience and training they've gained elsewhere. The primary benefits to this strategy include:
- They're likely to be more productive than the DIY approach.
- You'll be developing an internal resource and core competency you can control directly.
- Typically, commissions paid to salaried salespeople are lower than commissions to outsourced sales professionals. Thus, at higher levels of productivity, they can be more economical than outsourcing.
That said, there are some difficulties associated with hiring from the outside. A franchise sales professional who's accustomed to high earnings may not want to work with an unproven franchisor, particularly if the company plans to sell fewer than 20 franchises each year. A good franchise salesperson can sell 25 franchises or more per year (depending, of course, on the nature of the franchise). Such a pro will wonder whether the new franchisor is committed to franchising over the long haul. Moreover, they may be uncertain whether the franchisor can fund the marketing necessary to generate an adequate number of leads.
Then there are the costs of recruiting and relocating a franchise sales executive, along with associated overhead expenditures. Employee benefits and FICA alone can add 30 percent or more to their salary. You may also need to hire an assistant to handle inbound leads, send out packages, and organize and maintain compliance files. Then there are the associated expenses (desks, computers, contact management software, etc.) and office space.
There are also issues of performance. If a franchise salesperson fails to work out (or if they quit), you'll be left without a key resource in this vital position. And in the interim, you may be forced to resort to the DIY strategy or to going dark while you recruit a replacement.
Many franchisors come to rely heavily on outsourcing, especially with their legal, payroll and accounting needs. The most recent outsourcing trend in franchising is the emergence of franchise sales outsourcing (FSO) organizations that will handle every aspect of the franchise sales process on the franchisor’s behalf. An FSO typically takes responsibility for franchise marketing input, initial lead handling, database input and maintenance, materials distribution, trade show attendance, preliminary lead qualification, disclosure, Discovery Day, document management and preparation, and both pre- and post-franchise sales closing support. In fact, the only aspects of the sales process an FSO doesn't handle is approving candidates, executing contracts, and accepting franchisee fees on behalf of the franchisor.
These organizations have a number of advantages:
- FSOs can free a franchisor’s time to focus on existing operations and the success of franchisees.
- They don't require extensive training, you don't need to pay a recruiter to locate top performers, and they can start almost immediately since they don't need to provide notice to their previous employer.
- They allow franchisors to avoid virtually all the startup costs associated with creating an internal sales department.
- They allow franchisors access to more experienced salespeople, as sales pros will not have qualms about joining established outsourcing companies.
- They have additional staff they can use to replace any salesperson who quits or is let go, so you won't need to worry about going dark.
- They can scale franchise sales, as they have the incremental staff to take on greater sales commitments when the franchisor is ready to get more aggressive.
- They typically have a lower fixed cost than hiring a sales professional, reducing out-of-pocket costs and risk.
Yet these organizations aren't without controversy and are certainly not the right solution for every franchisor. One downside to working with FSOs is their potential costs. The top FSOs typically take a monthly processing fee combined with a commission for every sale. And while the monthly fee is usually much lower than the salary you'd pay a full-time salesperson, the commission is substantially higher. This low-fixed-cost model reduces overhead, but the higher associated commissions can make them more expensive at certain levels of sales.
In considering costs, remember that FSOs aren't responsible for lead generation -- so you'll still have to spend just as much on franchise marketing.
Likewise, FSOs are not brokers. While both are paid commissions, FSOs begin their work where the broker leaves off. Brokers are paid for leads (but only if those leads wind up closing); FSOs get paid for closing them. So if you were to employ both, you'd have to pay two commissions.
There are other considerations apart from cost. Outsourcing your franchise sales activities doesn't allow you to build an internal core competency around the franchise sales function. And, of course, there's also the question of how much control you can exercise over an outsourced organization. While the best outsourcing organizations will bring you only pre-qualified leads and take your direction, ultimately, they're not your employees and there are limits to how much authority you can exert over them.