Be Well-Capitalized; Set IFF Correctly; Have a Dedicated Rep
I’ve been in franchising for 2½ decades, and I see three main mistakes that keep people from achieving their dreams of successfully franchising their businesses.
If you avoid them, you’ll have a much greater chance of building a brand that thrives.
1. You are undercapitalized.
Don’t franchise if you’re not ready. Everybody thinks their baby is the most beautiful baby on earth, and it is to them. But it takes lots of money to get your baby seen. Folks think, “I know it’s a lot. I just dropped $50,000 to $250,000 to become a franchisor.”
OK, you have a Franchise Disclosure Document. You have a franchise available to buy, a great offer. That’s a nice foundation, but there will be many more expenses. The prettiest baby in the world doesn’t matter if no one can see it, understand it, hear it and have someone to talk to.
You must market to get the word out, and you’ll go through tons of folks before somebody wants to do Discovery Day. You’ll finally award a franchise, so your training team has to be ready to go. Your franchisee will come in for training, you’ll get him or her set up (possibly with real estate involved beforehand) and then the launch occurs. Then you’ll have to hold the franchisee accountable while constantly guiding, coaching, training, supporting and more.
Royalties might come in someday, but it’s not going to be fast. And it will cost you a whole bunch of money in the process.
Maybe you’re like me. I had a very good, strong cash cow when I became a franchisor, and I used about two-thirds of the profits – the net income from my cash-cow original template business – to fund my franchise until it became royalty-sufficient. It took a while. The business had grown crazy-fast and strong three years before. And it was three years before I saw profitability from my franchise.
It’s essential to understand how much money you’ll need. You’ll need $1 million. And that’s conservative. That’s if you’re kicking butt, taking names, moving fast, doing it lean and mean, and you’ve got awesome franchisees paying royalties.
It will take $1 million before you get to profitability as a franchisor. That’s not up for debate. It’s going to happen.
2. Your initial franchise fee (IFF) is too low.
I firmly believe this: You will sell more franchises if your franchise fee is higher rather than lower. You need to make some money when you award franchises. And it takes a whole lot of money to market and award a franchise.
If potential franchisees see an all-in startup amount of $200,000 or $2 million and you’ve added $10,000 or $20,000 to your IFF, the candidate doesn’t interpret this as adding 50% or 80% to the fee. Candidates will look at the total Item 7, their all-in investment range. Say you add $10,000 to your IFF, taking the all-in amount from $400,000 to $410,000, that’s not a significant increase to the franchisee’s overall startup cost.
A lot of people think, “Well, if I work with consultants, I’m going to pay a whole bunch of the IFF to the consultant.” So what? Instead of that, which is zero financial risk because you’re doing it after the fact, you can spend double or triple that and then some in marketing with absolutely no guarantee, risking it all and hoping you get to award a franchise.
So don’t be afraid to increase your franchise fee. If your competition is at $35,000 or $45,000, you should be at $55,000. According to the International Franchise Association, IFFs typically range from $20,000 to $50,000. At $55,000 you’re barely above that average.
Remember that franchisees are making a very serious life investment decision. They want the best. They want the most thorough, powerful training and seriously committed franchise support team. And if they’re looking at one that’s a $40,000 franchise fee and another that’s $55,000, they’re thinking, “You get what you pay for.” They may not say it, but they think it. Adding an extra $10,000, $12,000, $20,000 to your franchise fee to make a bit of profit – well, you’re a for-profit business and you need to do it.
Your opportunity is worth it, right? You’ve got the best, so charge the best. You’re worth it. Candidates believe they’re getting what they pay for, and you need to charge more.
3. You undervalue the franchise development process and franchisor representative.
The combination of the franchisor’s rep and the franchisor’s process are crucial to viability.
You’ve got the process, the videos, the downloads, the drips, the texts, the steps, the Discovery Day, everything. Have your process finely tuned so you can document it as a proven entity.
You also must have a development rep who knows the franchise inside and out. If you’re the founder, nobody loves your brand more than you. Nobody knows your brand better than you. And I bet you’re a great communicator. You’re thorough. You’re reliable. You’re disciplined.
But franchise development requires a total focus and expertise. It is an all-the-time business. The rep must be fanatical, someone living and breathing the franchise.
The franchise development rep must be fully focused, dedicated and fanatical about the franchise. A founder can’t run the original business and be a successful franchisor, too. He or she has to leave that original business and be a franchisor. He or she must hire a manager for the old business and a support staff to handle everything else. Because franchise development is now EVERYTHING. And remember this: You don’t have a franchise – you’re not a real franchisor – until you have opened franchises and have profitable, happy, successful franchisees.
Franchise consultants help but we’re not closers. We’re qualifiers, educators, communicators, massagers, follow-uppers. We’re good people, but your rep must be somebody 100% dedicated to development, someone who knows every detail about your franchise and can answer questions authoritatively and present qualified franchisee candidates with a strong case for investing. The right rep makes all the difference.
