The 2 Key Sources of Prospective Franchisees You Haven’t Considered Essay Example

various groups, including employees, customers, dealers, salesmen, bankers, and attorneys. These groups possess knowledge of the business and its management team, which adds to the credibility of the sales process. Even individuals you have just met can provide excellent referrals. Another useful source is a noncompeting franchisee who wishes to join your network. They are likely to have financial and operational qualifications and can connect you to numerous prospects who are interested in a promising business venture.

To sum up, every new contact has the potential to provide referral leads. Simply put, this involves two steps: networking at every opportunity and asking for referrals. Additionally, if you already have franchisees, consider recruiting them as a source of referrals. Typically, they are proud of their decision to join the network and what they have achieved. Thus, they are often eager to speak with prospects, particularly those in different regions. These franchisees are some of the most effective salespeople available. They enjoy talking about their businesses and have an immediate influence on prospects who recognize their enthusiasm stems from genuine experience.

When considering expanding your market to include a franchisee, it is recommended that you communicate with them regarding your plans. Although some franchisors may be hesitant due to concerns about the franchisee's potential opposition, this is actually an opportunity to emphasize the advantages of network expansion - such as increased purchasing power, advertising influence, brand recognition, support services, and business resale capability. Educating your franchisees on these benefits can prevent future misunderstandings. Additionally, engaging with them may lead to discovering promising candidates for the territory.

If your franchisee is not interested in investing personally, they could refer friends

or relatives who may be interested. Because they understand your business's requirements for success, their involvement in selecting a new neighbor can lead to a productive partnership. Offering referral fees to franchisees who successfully bring in new sign-ups can encourage them to make recommendations. Despite being a common practice, referral programs might trigger some disclosure requirements, so it's important to consult with a franchise attorney before implementing them.

It is recommended to exercise caution if considering paying referral fees to franchisees. Franchisees are not subjected to the same disclosure rules as franchisors, allowing them to speak candidly about sales and earnings with franchise prospects. However, compensating franchisees for referrals may cause a conflict of interest and hinder these discussions. It is advisable to consult a franchise attorney for guidance on this matter.

Brokers

Franchise brokers, or lead referral networks (LRNs), serve as intermediaries for prequalified leads to franchisors in exchange for a success fee paid upon completion of the sale.

A broker typically represents many franchisors, often hundreds, and acts as a matchmaker to direct potential franchisees to suitable franchise companies. Although a broker provides third-party credibility, the broker only facilitates the initial connections and removes themselves when the selling process begins. Therefore, the franchisor is responsible for making actual sales. Brokers are considered an extension of the franchisor's advertisement budget rather than a part of the franchise sales process. Programs aiming for swift franchise growth may find LRNs useful in enhancing the sales process.

Although outsourced franchise lead generation provides a variable cost structure, it can be more expensive than internal lead generation since brokers often charge average success fees

of $15,000 or more. Nonetheless, brokers are advantageous in several ways. While some require fees to accept a franchisor into their network, most brokers are paid only once a franchise is sold, which ensures a pay-for-performance relationship. Additionally, franchisors need not pay these fees until after they've received the franchise fee, which gives them some cash flow advantages.

Furthermore, broker leads are prequalified before coming to the franchisor, resulting in a quicker and more successful franchise sales process with higher closing rates compared to other leads. Franchisors can also utilize brokers to gather prospect feedback and guide them through the sales process effectively. However, working with brokers can come with drawbacks, as they may make representations that may potentially expose the franchisor to liability, claims of fraud, or franchisee dissatisfaction despite not being directly controlled by the franchisor.

Responsible franchisors must oversee their brokerage network's representation, provide continuous training and feedback for brokers, and fully inform potential franchisees from the franchisor's point of view. Relying on brokers for lead generation is not effortless, as franchisors often spend money on conventions and communication plans to maintain a prominent franchise reputation with their broker networks. However, brokers cannot replace an internal sales force.

After generating the lead, it is the franchisor's responsibility to handle the franchise sales process and pay a sales commission to the franchise salesperson in addition to brokerage fees. However, being represented by a broker, or even multiple brokers without exclusivity, does not guarantee success in franchise sales or a boost in lead flow. As a new franchise company, there is a possibility of minimal brokerage activity despite significant expenses.

It may be challenging for newer franchisors

to get on the short list of individual brokers because brokers aim to send leads to franchisors that either pay higher commission rates or can close deals. When deciding whether to use brokers, various factors must be taken into account, such as the aggressiveness of franchise sales goals, marketing budget size, desired geographic coverage, and willingness to closely monitor the brokerage network. It is crucial to choose brokerage networks with the same level of consideration as that of an in-house franchise sales force. Brokers can significantly boost franchise sales for some franchisors, but they are not suitable for everyone. They should be seen as a way to supplement franchise sales leads, not as the sole source of generating such leads.