Even making it to the Olympics can be a lofty goal just like the dream of being your own boss. Just like Olympic Athletes, if you put in the time, have a great coach, get a few breaks and stay focused you just might win the goal medal of franchise ownership.
There certainly is a lot of buildup to the Olympics each time they roll around, and for good reason- the Olympics rarely disappoint. There is still a purity to the games that is lost in many of the professional sports. If you’re like me, you might find yourself thinking what could have been… What if real effort had been put into a childhood activity…could it have blossomed into chasing an Olympic opportunity? Olympic athletes are an exclusive group, many of them overcoming huge obstacles to reach their dreams. While the odds of becoming an Olympian are long, it is still ok to dream. While there seems to be more older Olympians than in the past, some over 40-years old, mostly the games are reserved for the young. So, what do more “mature” people dream about?
What “the mature” sect often dreams most about is often owning a business and being their own boss. Having been a franchise consultant for many years, I am regularly reminded how powerful the dream of business ownership can be. When I tell someone I am the president a Franchise Consulting company, I am almost immediately asked – “what is a good franchise to buy?” People often tell me how they always wanted their own business or how they had tried doing something on the side and always wanted to give it another try. People will ask me what they can do to find a business that fits them, how much they typically cost, and is there financing out there available if needed. I can see the wheels turning and the dreams starting as I provide answers to the questions. Knowing dreams without a plan are merely a wish, I typically try to provide practical advice detailing steps and tools they may utilize to actually formally investigate the opportunity of business ownership. I provide them links to franchise portal websites where they can examine businesses by industry, initial and ongoing expenses as well as other criteria that allows for narrowing from hundreds of brands to those that best match their experience and interests.
The other major criteria I mention to the newly excited prospective business owner is to find a business they truly find interesting. You have to love what you do – with passion comes profits. So, while investment, ROI, and earning potential are all important, you want to find yourself waking up each day excited to go to work. By finding a franchise you are passionate about you will also discover happiness and success will follow closely behind.
So, figure out if you are more of a distance person like the grueling biathlon events, a risk taker like the downhill skiers, or more of a team player like the bobsled; there is a business out there for you. Once you identify what type of business “athlete” you are; make a plan and chase that dream- you might just end up getting the gold!
Here are some questions to ponder before making the leap into becoming a franchisor
Certainly there are many questions posed to prospective new clients considering franchising and significant time spent with the client evaluating their offering but there are some questions that tend to resonate and “get the ball rolling” with most companies.
Franchising is a very powerful business model which is why it is so attractive to entrepreneurs who want to expand their brands. It is also layered and involved; franchising has many idiosyncrasies often overlooked by the emerging entrepreneur such as the unique business relationship between franchisors and their franchisees. When considering franchising, entrepreneurs often place an emphasis on the product/service above all else leading them to believe if they produce the best widget they will in-turn be the best franchise. With these understandings the following questions might make sense.
What do you feel are your advantages over other companies in your marketplace today and how would the franchisees capitalize on this advantage?
On average how long would it take to train someone to be proficient in running your type of business and are there any particular functions that might prove more difficult?
What type of income could one expect to make by operating a replica of your current model in a new market if they were relatively successful?
Franchising is a relationship based model requiring long-term stability. Do you feel you are the type of individual capable of creating and managing relationships over the long-term?
What is the reason you are considering franchising as a model for expansion? What are you goals for the expansion?
While these are not the only questions to consider they will help start the process of determining if franchising is a good model for expansion and your quality of life.
It is recommended you contact an experienced franchise consultant to further explore the opportunity and dive deeper into the specifics of transitioning your business into a franchise company.
In tough economies, franchisors need to go above and beyond to get the attention of quality franchise prospects. And must have all the key components in place to ensure franchise buyers clearly understand the benefits of joining their franchise system.
In today’s competitive franchising environment franchisors need to put their best foot forward when it comes to attracting top franchise prospects. In a struggling economy franchisors are still able to grow; layoffs and uncertainty lead individuals to seek out stability and an environment in which they have more control. However, with the lack of third party funding, good quality candidates are being spread among thousands of franchise brands and with top franchise candidates fighting off suitors like the head cheerleader before prom, franchisors better make sure they are wearing the best tuxedo available.
A Franchisor’s “tuxedo” consists of a variety of items, franchise information packets, franchisors websites, Facebook pages, social media messaging, pr marketing, franchise web portal advertisements, and current franchisees. So how does a franchisor ensure they have created top quality materials that represent their brand well? There are six key components to creating a quality image for your franchise brand.
Internal Research – in order to unify your message and decide which key items you are going to push forward in your marketing message, consider polling your staff, everyone from administrators and trainers to your executive team and field support personal. Ask each team member questions such as: “what key characteristics make a top franchisee?” “What are the top features of our franchise offering?” When you compile the information make sure the key items are prevalent throughout all your messaging.
External Honesty – research your competition. It is important to discover what message your competition is delivering regarding their brand and franchise offering – likely this information will be brought up during the franchise development process. Be honest with yourself and decide if you feel you stack up well apples to apples or if you feel your key features are more important to franchisee success. You may need to change your messaging to demonstrate your advantages or to minimize the features your competition uses as the cornerstone of their marketing message. And if your competition offers a service you feel is valuable you may consider adding it to your offering.
Copy – if you don’t have an experienced franchise development person and professional copywriters on staff you should consider working with a third party to write your marketing copy. Your message creates first impressions for franchise prospects and needs to be clear, engaging, and accurate, set key expectations, head off competition, be timely and create a call to action. In addition, your messaging has to meld perfectly with your custom franchise development process. With so many important components it may be hard to tackle if you don’t have experience and expertise in creating copy so consider getting help if necessary.
Design – we’ve all heard the term, we eat with our eyes first. The same if true for marketing materials and websites. Franchise prospects will look at your “tuxedo” first, long before you have the chance to begin communicating your message. Make sure your materials are clean, crisp and the imagery is an accurate representation of your culture and offering. Many franchisors create aesthetically pleasing marketing materials but the copy and the imagery don’t deliver the same message or create the “feelings” needed to move prospects to the next steps of the process. Make sure to pick quality imagery. After all, a picture speaks a thousand words.
Commitment – As you complete your messaging and marketing materials it is important to receive buy-in from your staff. From your administrative team through your executive staff everyone should be delivering the same message with regards to culture, support, services, ideology and key components of your franchise offering. When franchisees join your system they will be much more comfortable as they see a commitment to the items that attracted them in your initial marketing message and franchise development process. And your current franchisees should be reminded of your message and goals so they are in step with the corporate message. Engaged franchises are not only a great asset to the development process but are more successful also!
Review/Updating – don’t rest on success. If you begin to have a lot of success your competition is going to take note so you need to stay one step ahead and adjust as necessary. Additionally, as you grow your offering and message may need to change; so regularly review the message you are delivering through your Franchise Information Brochures, website, social media and franchise development process to keep it accurate and up to date.
It is also important to note, as you change your message and materials that will be seen by the general public you should have them reviewed by your franchise attorney to ensure legal compliance. Your attorney may have feedback regarding your message and new materials may require review by registration states also.
So if you want to attract quality franchise prospects spend time preparing and then invest in your materials; and as you start having success review and revamp as necessary. With great new materials your “tuxedo” should help you land that elusive prom date!
The Franchise love, hate relationship with the internet might finally be over! Finally, a solution for franchise companies to deliver coveted local search results to their franchisees!
The framework of the internet was created in the 1950’s and 60’s with a contract given by the US Government in 1969, leading to the internet we know today. Unfortunately, the pain of the internet started for the franchise industry shortly after and has continued through today. When the World Wide Web was open to the public in 1991 it took off, and by the late 90’s it was prevalent in daily life. At the same time, to the detriment of franchise companies, domain squatters were gobbling up the domains of many large franchisors around the world looking for a leveraged payday.
Meanwhile without any legal language in most franchise agreements for the burgeoning internet, franchisees started launching websites of their own. Most of the sites were created by low-end designers learning their craft, or worse the franchisee’s nephew who swore he could help out and create a website. With poor designs, odd domain names, and no consistency, obvious image problems emerged- along with confusion for consumers. Franchise companies were rightfully concerned with controlling their online images. Eventually Franchisors and their attorneys would get control and, in most cases, centralize to one corporate website. While the control was necessary and eliminated initial issues, it started the feckless use of the internet by franchise companies. Even today, besides the largest brands, most franchises have little to no local name recognition. A simple local Google search will show many, if not all local companies ranking higher than their franchise counterparts. Many franchise companies are virtually invisible when consumers perform local searches. The combined loss of revenue across a brand because of missed opportunities is in the millions of dollars annually.
Over the years, to combat the problems, Franchisors paid big bucks and put-up fancy websites and began promoting them. Franchisors quickly learned search engine optimization often referred to as SEO, which is an expensive service provided by web marketing companies, did not line up with the needs of the Franchise industry. SEO has some benefit for centralized businesses or for selling specific products but has almost no value for decentralized businesses such as a franchise model. Unfortunately, franchise companies learned this lesson the hard way- spending 10’s of thousands, if not hundreds of thousands of dollars on failed SEO. SEO companies would drag out expensive contracts with significant monthly payments, on the promise the results were coming. It is hard to find a franchise who does not know this scenario all too well.
From the Frying Pan into the Fire
Eventually franchisors moved on from SEO, found their safe place with one corporate website and simple location pages for each franchisee, but little did they know what was coming. Just when attorneys and franchisors had adjusted to this internet thing, Social media comes along with even bigger challenges than the simple websites that had scared franchisors decades earlier. Sure, having random websites set up by a franchisees nephew was damaging to a brand but nothing compared to the damage Social media could do. If the damage a random website could do to a brand was equivalent to a fender bender, the damage a viral, runaway social media account could do would be a fifty-car pile-up. Most franchisees had little experience with social media but were being told, often by their younger staff or children, how important it is and how “easy”. Famous last words… social media is dynamic and seems commonplace since most people use it in their social lives. But managing an active business’s social media account is an entirely different story. Franchises have tried all sorts of iterations to solve the social media puzzle, centralizing control in the corporate office, providing direction but allowing franchisees to manage individual accounts in their local markets, and hybrid approaches like using third-party web marketing companies managing all or parts of the process. Much like the initial challenges with the internet, franchisors learned to mitigate the legal and brand risks with social media but garner little to no value from the powerful marketing tool that reaches 337 million active users in the United Sates alone.
Ad Funds and AUV
Average unit volume, average unit volume, average unit volume!!! Franchisors and consultants preach constantly the importance of the success of franchise locations and the need to have strong average unit sales to be a successful Franchise. Seems easy enough, sell franchises to good people, give them a roadmap, training, and set them loose. They will all succeed, right? The rub is- the human factor. Franchisees are not robots, they absorb training differently, they have personal situations, different markets, various backgrounds and skills, and area specific competition to contend with. Because many franchisees struggle with local marketing follow through and effectiveness, franchisors put in National Advertising Funds trying to level the playing field, hoping if advertising efforts were uniform, results would improve, and average unit volumes would rise consistently across all units. Eliminating some variances of local marketing execution, National Advertising Funds can have positive effects. Large brands that have the funds to completely manage and run media in each market can be highly effective. However, most brands do not have funds significant enough to manage the entire system and some brands do not benefit as much from mass media, so they have to leave more up to the local business owners who often are not effective or consistent marketing managers. To complicate National Funds more, franchisees often push to have the funds spent specifically back in their markets dollar for dollar, which is not possible in most cases and can create friction between the franchisor and franchise owners. So, how to solve the challenges of local marketing, use of national funds, while providing consistency and quality results?
Parallel Paths with a Serendipitous Synergy
While Franchise Companies were fighting their decades long ongoing fight with all things internet, John Kitts was fighting his own battles with the changing algorithms of the search engines. John Kitts working in Northern California in tech, had started a company for use by small businesses to create exposure on the internet. While most companies were trying to “hack” the algorithms of the search companies, John made the strategic decision, in the long run the internet would eventually come down to consistent, quality, accurate content. He fought the urge to chase every change in algorithms attempting quick search results for clients. John didn’t know it, but he was creating an entirely unique approach to local business exposure on the web that in the future would intersect with the goals of online search goliaths like Google. While other web marketing companies promised fast results by feeding the search engines quick fixes, the strategies always turned out to be just short-term until the search engines caught on and once again changed what they valued. Afterall, what the search engines want, is for consumers to type in a search and find the most accurate information, not a website that was manipulated to trick the search results. So, for 15-years John stayed true to his long-term strategy while making key adjustments to evolving internet technologies. Over the years, more and more small businesses joined John’s website delivering local news throughout the United States. With each company contributing content to the website, the power and authority grew with the search engines and so did the exposure of his clients and their number one search rankings.
City Scoop and Franchising
Today, there are roughly 18-billion internet searches performed every month and most franchise companies are invisible to consumers looking for their products and services. Some franchises have attempted utilize Pay-Per-Click in absence of better solutions, only to find it is expensive and not viable over hundreds of units in their systems. Having a strong web presence is as important as the quality of your products or your customer service. You simply cannot run a business in today’s marketplace without a strong web presence, but nothing has really changed for franchise companies struggling to find exposure on the internet since 1991. Today, the challenges of the internet and social media are just as real as they were decades ago, or are they?
City Scoop is changing the internet landscape for Franchises. Thankfully for franchises, John kept grinding away on his company working long hours and finding small companies to take the leap and try his revolutionary marketing approach. John named his unique company City Scoop after the newspaper term “scooping” a news story. John bet on himself and he was right, a long-term systematic plan of creating quality local content would result in becoming an authority the search engines could trust. After 15 years of hard work, dedicated customers, and cutting-edge technology, City Scoop has become the number one source for local business news on the Web. City Scoop ranks above Newsweek, The Business Journal, USA Today, and all other websites to deliver local hometown business news to consumers. City Scoop was originally designed for small businesses throughout North America to contribute content and drive positive search results. What John did not know was City Scoop was set up just like a franchise with a centralized entity and satellites, and that City Scoop would be the cipher to the internet crucible for franchises.
As time went on, John was approached by some chain businesses and small franchise companies which led to serendipitous meetings with experienced franchise consultants who explained to him the challenges franchises were facing to garner top rankings in local markets and how the website he had built was perfectly aligned with the needs of the franchise industry. Franchises needed a value priced service that could create consistent, quality high ranking on search engines that did not depend on the local franchisees for content or execution. A turnkey service that could utilize national ad funds or harness local marketing spending requirements, ensuring fees were spent directly in each local market. City Scoop began working with more franchises delivering almost immediate results. City Scoop’s franchise clients experienced number one search ranking on their most valued searches and their average unit volumes soared. Additionally, overall marketing expense for City Scoop franchises clients shrunk. No longer were CityScoop’s franchise clients chasing fleeting interest through Facebook ads, door hangers, direct mail, coupon packs, ineffective traditional SEO, or any number of other less effective marketing tools. Meaning, franchises using dated marketing strategies need to hope their Facebook ads or Money Mailer coupons are viewed at the same time the consumer needs the particular product or service. With top web rankings you are always there when the consumer is looking for you. Each time a consumer picks up their phone and says Siri find plumbing businesses near me or decides to get back in shape and requests top rated gyms in Phoenix, your franchise website will show up on the top of the organic rankings. Franchising has always been about being part of a national organization while being truly local. Locally owned and operated franchises in communities around the country finally have an efficient and effective way to reach their precious, local neighborhood consumers.
BY: MJ Alto
MJ Alto is a freelance writer and business consultant with decades of experience in franchising and business marketing
www.cityscoop.us CityScoop is a News Organization solely dedicated to local news and driving online exposure for its customers
During an economic downturn, the first line item that corporate decision-makers lay down on the chopping block is the marketing budget: 60 percent of large companies reported that a cut has been made to their marketing budgets or is expected to be made. Another 29 percent of medium-sized companies and 13 percent of small companies echoed this projection.
It’s often the worst thinking. Although the temptation is to panic, now is not the time to cut marketing budgets. This type of thinking is akin to not buying gasoline because the price is too high and continuing to drive anyway. Eventually, high price or not, the car is going to run out of gas and leave the driver stranded. At the very least, you need to increase the value for each dollar you spend, and you should seriously consider also increasing the across-the-board budget. This is the time to take advantage of the chance to get your message out front of the competition as they decide to cut back. If your marketing programs are justifiable—you can, for example, show the number of click-throughs on a banner campaign and how much revenue they generated—your budget will be bulletproof.
THE ABILITY TO ADAPT IS THE ABILITY TO SURVIVE
The business-to-consumer market is being hurt worse than business-to-business. That’s because retail and financial services—the biggest feeders for this sector—always get hit the hardest in a downturn because consumers are less likely to spend money on purchases that are not necessities. Marketers are considering shifting from traditional media to online tactics, which are less expensive to launch and maintain and have a wider reach and frequency; they are spending more on direct marketing and less on branding; they are making sure that their marketing investment will have a measurable or proven return on investment (ROI). Marketers just learn how to be smarter with their money. Here are some considerations that should be weighed heavily if you are considering cutting marketing expenses.
Tips for getting more value from your marketing budget, for business-to-business and business-to-customer:
Fine-tune messaging to emphasize value and cost savings.
Rework website content to better communicate value.
Be specific about what clients expect from their investment
Emphasize premiums, free trials, and discounts.
Emphasize testimonials centered on increased revenue.
Keep communicating with your customers even if they are spending less: direct mail, email, advertising—it’s less costly to market to current customers than past ones.
Don’t be surprised if you see sales cycles lengthening—that means you need to increase the volume of what you’re putting in your pipeline now. And be aware of the historical performance of the pipeline: if you needed 10 leads to make your revenue target last year, you’re going to want to have 20 opportunities identified this year.
Test your messaging and media: it’s the best way to improve results without spending money.
Events and trade shows are expensive and typically have a low ROI. Shift these dollars to trackable, online tactics such as paid search, natural search, and email marketing.
Although the highest constant spending category is still print advertising, it remains—along with TV and radio—one of the most expensive.
The present list of tips that ranges from spending marketing dollars on actual media buys that result in impressions—email marketing, advertising, direct mail, for example—and cut wasteful, expensive overhead expenses.
Rethink spending priorities if you are working with a full-service agency. You need current results not long-term results.
Think direct marketing—it is more measurable, more trackable, and at the same time gets the brand and the message in front of as many eyes as possible.
If the budget is truly zero, then marketing activities that are free need to be implemented: Craig’s List, eBay, in-store referral programs, blogs, website promotions, press releases, and networking groups. There are always other routes to take to get to the sales destination. Once sales recover, more familiar marketing vehicles can be invested in.
An economic downturn does not mean zero sales for all businesses, it only means fewer dollars are in the marketplace.
MYTHS IN THE MIDST OF MAYHEM
Marketing activities are driven by several factors and forces, and during an economic downturn the perceptions of these by marketing executives are often flawed to begin with, skewed, marred by history and personal experiences of senior management, though most have no historical precedent or foundation. Here are some marketing myths to reject when considering whether to cut your marketing budget to “save” money:
Myth #1 – “Our brand is strong enough not to need support for the duration of the downturn.”
Fact: Few brands are strong enough to survive without advertising, product promotion and customer service support. Brands will wither and shrivel to a shadow of their former selves without attention. This is not a position for a brand to be in when the growth engine for the economy revs back up. Customers won’t buy from companies they have never heard about; they will buy from the ones they are familiar with.
Myth #2 – “If we cut back on marketing spending, we can use the money for other things internally, and increase the budget when things get better.”
Fact: Studies have shown that once that budget gets cut, it takes a Herculean effort and a strong internal champion to boost it back to its former levels, and even if it does increase, there are much stronger conditions of ROI attached to its implementation. Once those funds are allocated elsewhere, they tend to stay there because that other department doesn’t want to give them up either.
Myth #3 – “Nobody’s buying anything, advertising and promotions are a waste of money.”
Fact: Those that reduce their presence in their key service markets are in a far worse position in terms of profitability, market share and market competitive presence when the downturn eases and profitability growth returns than those that maintain their marketing activity levels. Those companies that are bold enough to increase marketing activity stand a great chance of taking market share from their less aggressive competitors and can rule the category if the downturn lasts long enough.
Myth #4 – “We can cut back on marketing now, and then ramp up quickly when things get better.”
Fact: This strategy has proven disastrous time and again, especially for companies that have inefficiencies inherent in their design or product delivery channel. That inefficiency won’t allow them to “ramp up quickly”, since by that very inefficiency they will effectively always be “late” when timing the market: they are not market leaders but laggards, and the ramp-up activity gets started late in the buying cycle, and their more nimble competitors have already beaten them to the punch.
Myth #5 – “We should examine what’s working and cut out everything else.”
Fact: This is not really a myth, but a knee-jerk reaction to a short-term slump in sales gross. Good marketing departments should be doing exactly that on a perpetual basis, not just when times are tougher. Why would any marketer continue programs that didn’t work, dragging down performance across the board and wasting money?
Myth #6 – “Marketing spends more money than any other department, they have the most room to cut their budget.”
Fact: Return is really what counts when its budget review time. Marketing is one of the few departments that actually points to contributions they make directly to the bottom line. Cutting the marketing budget only reduces the opportunities available to build market share, boost product awareness and memorability in the mind of the consumer, and dampens profitability in the long run.
Myth #7 – “All of our competitors are pulling back advertising and media expenditures to save money, so we should, too.”
Fact: Mom knew better than this when you used the excuse “All the other kids are going, why can’t I?” Her response? “If the other kids jump off the bridge, are you going to jump, too?” Despite being competitors, their financials likely look a bit different from yours, and it’s foolish to think that you can mirror their moves and be successful. The smart money here is being used to take market share from your more timid competitors, by increasing presence and exposure, and cutting other less-than-mission-critical expenditures for a short period to accomplish it.
Myth #8 – “We should downgrade the quality of our marketing materials, use a cheaper creative agency, and mail out less frequently to save money.”
Fact: This set of moves will actually cost you both in the short- and long term. You might save a very small incremental amount on cheaper paper, shorter, smaller brochures, cheaper handouts, and smaller tradeshow giveaways, but the damage to the brand and the resulting poor reflection on the company as a whole does more damage than can ever be repaired by spending those few dollars later to try and fix it. this kind of thinking also shakes the confidence of your customers by giving them a visual representation of how poorly your company is performing! “They must be in trouble. Maybe I’d better take my business to the other company that’s likely to be around to support their products down the line,” is the thought being promoted by reducing quality in publicly released materials.
Good design often costs less than bad design, due to fewer creative iterations, fewer miscues, greater effectiveness, and higher return. Jumping ship from the agency you’re with if they are delivering on dollars spent just to save a little money is foolhardy. The ramp-up time for a new agency to learn your needs, your products, your style, and your brand will just about be exhausted by the time the average recession is over, and it will have cost you more to get the same level of productivity in that time, just in time to reposition for the new economic conditions.
In this episode, we discuss what types of businesses make good franchises. We also cover key decisions when setting up your franchise as well as considering competition and evaluating your industry.
Hi and welcome to another episode of All About Franchising.
Often folks will ask- is my business good to franchise and what type of businesses are good for franchising? Well, there is critical criteria to consider when evaluating your business or trying to develop a business to eventually franchise. The most important item to consider right off the bat is- the business must be in a strong industry, one that’s not only strong now, but could grow in the future.
To use a simple example, you would never franchise a horse and buggy business now since it’s been replaced by the car. So, no matter how good of a horse and buggy business you have now, it’s not going to survive because it’s just outdated, and it doesn’t compete in today’s marketplace. There are great businesses that are still profitable and thriving but wouldn’t be the best franchise going forward because the industry is not good long-term. You must be realistic about where your industry is going when considering if you should franchise a business within the industry. Another thing to consider is the investment compared to ROI. Obviously, the less expensive the upfront costs are to buy franchise, (that means the total costs and/or the amount you must put down in order to secure a loan), should be reasonable and as low as possible; that way you have more possible buyers.
One of the most important items is, what is the payback on the investment? If the franchisee follows your system and does an excellent job? How quickly can they make back the money that they put in? How quickly can they reach profitability, and over time justify the investment that they put in upfront?
Another consideration is, can the product or service can be learned reasonably? How long would it take to become proficient at providing the product or service, which is going to be the main component of the franchise? That’s important for a bunch of reasons because obviously folks can’t be away from home for long, long periods of time trying to learn a business. If they send managers or other staff to training and then they lose those staff members, how quickly could they replace them? And would there even be ample staff available that might already have background in providing that product or service?
A few final items to consider when setting up your franchise is, lower cost franchises are going to have more possible buyers, and part-time businesses, franchises that can be started, “on the side,” can be immensely popular. However, you do have to be realistic about them. Often businesses that are billed as, able to be “run on the side” are treated like things on the side. So, while some simple businesses might be able to be started on the side, it shouldn’t be the main component in the sales approach for the franchise, because you might attract, unfortunately, folks that think the business doesn’t require much attention- and all businesses require attention.
Another thing to consider…is it a mobile service? Is the business brick and mortar? Meaning, does it need a physical building or office? Can it be run out of home? These are important items to consider. Obviously, businesses out of home are lower start up. But again, do they have a dedicated office in their home? Are they going to take it seriously?
For brick-and-mortar franchises, you should consider the economy and availability of real estate. Sometimes when times are really, really, good and people are bullish about expanding and opening a business, real estate may be exceedingly high and startup costs may be very high as well. So, it might create an extended ROI, although when times are good, that’s when people are the most confident in buying a business.
So, you do have to consider when you’re looking at a brick-and-mortar business, what the real estate market is at that time. It’s not always true that when the economy is good, real estate and start-up costs are high. So, keeping on top of market fluctuations effecting brick-and-mortar businesses, is important. We will talk about this more in a different real estate video.
Service businesses are always extremely popular, they tend to be bought strategically. Meaning someone may work in a certain industry and then seek out a franchise in that industry. What you find with service businesses is people will look only for that specific service. If a prospective franchise buyer had a home inspector come to their home and they paid $500 for a home inspection, they may think, “Jeez, what a great business”. And they will only seek out various home inspection franchises and compare them to each other. They purchase the business thinking- “I’m really technical, I’m handy, I have background in computers and other technical things necessary perform this business, it looks like a good business for me.”
Service businesses tend to be bought more strategically while franchises like food oftentimes are passion projects. It doesn’t mean they’re not strategic, it just means there are people that dream their entire lives of owning a restaurant or running a restaurant. They can oftentimes be passion projects, and it doesn’t mean that’s a bad thing. It just means there’s a lot of folks that never worked in food who have always been fascinated by it. So, there are special considerations when launching a food franchise.
In other videos, we are going to cover mistakes brands make when setting up their franchises because there are many brands that could have been great but made key mistakes. There are plenty of pitfalls out there when setting up a franchise.
Another key decision when setting up your franchise is, the number of moving parts at the local franchise level. How much burden are you going to put on the franchisee and how much you are going to take on at the corporate office. Division of duties can be a big part of people’s buying decisions as well. Look at your business and consider how many moving parts do I have here? Does the person have to master five, six, seven different things to be successful? Or can we just limit them to one specific key task to perform locally, and we can take the rest of the burdens off of them?
As a final thought, we should discuss competition. One big worry is often competition, and frankly, that shouldn’t be on the top of the list. If you look at the burger industry, you would have never considered after there was already McDonald’s, Burger King, and Wendy’s, you could have all these other brands come out like Five Guys and Smashburger and many more. And yet there’s many, many, successful brands now in the burger industry that would have been deterred by the “experts” from even entering the industry just 10, 15, 20 years ago. So, competition is not as big of a factor as most people would think.
All businesses and franchises are unique, and the criteria we covered are just some of the items that should be considered when evaluating and setting up a franchise system.
There are experts that can help you, too. And there’s a plethora of information online, plus lots of examples in the marketplace from which to draw information.
As usual, please put comments or questions below. We’re going to answer questions in future videos. We may even do live open forum meetings where we answer questions and respond to comments. The more comments we receive will help us know the type of videos to create and what questions need to be answered. We appreciate you watching and listening.
We hope you enjoyed this episode of All About Franchising!
In this episode we cover the national advertising fund from the franchisor’s perspective. We delve into some key aspects of setting up the fund, what fees are applicable to run through the fund, and some common mistakes.
Hi and welcome to another episode of All About Franchising. In today’s episode, we’re going to cover the Ad Fund from the franchisor perspective. We’ll cover how to set one up and some other considerations, including what to do locally, and what to manage centrally from the corporate office. Ideally, we recommend managing as much as possible centrally.
So, what should a franchisee spend every month in order to be successful in their franchise? Without getting into a lot of difficult math right now, let’s just use $5,000 as a standard amount to be spent for the first year to get the business off the ground. So, you want to look at that $5,000 and determine what can we do from a national perspective better than can be done, even if done perfectly by the franchisee locally.
A lot of marketing items are probably going to be done better centrally rather than locally. And the reason we say that is because, even if you give a perfect plan to the franchisee, and you provide them the materials to do the job, and you explain how to do it- you still have hundreds of franchisees out there. They’re all going to perform the tasks slightly differently, which means you’re going to garner different results.
And what you really want in a franchise system is consistency. So, if possible, if it can be done very effectively from a national level, then it should be. Things like going out and seeing local businesses and introducing yourself, cannot be done nationally. So, you want to have a very good plan, and make sure that you’re providing the franchisees all the tools they need and the training to execute effectively. It’s important your directions on marketing are complete system not just a list of suggestions. A lot of franchisors struggle because they give franchisees suggestions of what to do locally instead of complete systems on what to do. But I digress.
As far as the different funds, we typically have a national fund which can be referred to as a national advertising fund, an advertising fund, a national marketing fund, and all sorts of different things. And then we typically have a local spend, which we just discussed a little bit, and then you’ll have a co-op, a co-op is usually the combination of the first two, meaning the franchise owner can take the contributions a franchisee must make every month to their local marketing and the national marketing and combine them and direct the funds for special projects.
A Co-op should not be above and beyond the national and local spends. The Co-op should just be a re-allocation of those fees.
Another fee we are often seeing is a separate technology fee. The technology fee is very smart to annex from the other two. These are black and white type items that are likely going to be run by third party companies like Pay Per Click, Search Engine Optimization, email hosting and website updates, things like that. We know that those are consistent items within any franchise now. So, having them as a separate standard flat fee probably makes a lot of sense and people will get a lot of value from a clean, separate fee and know exactly where the money is spent.
Depending on the type of franchise, the corporate office may be managing large campaigns like national television campaigns while there are franchises who get almost all their business over the Web, who are spending the bulk of the National Ad Fund in combination with the technology fee in order to drive the business.
When determining the different advertising fund fees, and what is to be managed locally and what should be done nationally, it is important to ensure the activities to be performed locally are going to actually get done regularly and effectively. To the earlier comment about what you should do centrally and what you should do locally; the main deciding factor was can you do it better nationally? If you can then, you should do it. Then we said, if they could do it better locally, then they should do it locally.
However, are they going to do it? One of the big pitfalls happening with franchisors is they figure- oh, this is an easy thing to do. The franchisee can do it locally- not realizing the franchisee has many other tasks on your plate each day. And the first thing that they’re going to put on the back burner when there is a problem, or other things to do is the marketing.
For example, something as simple as social media, franchisors have really struggled with because social media is performed better locally, having a personal localized touch, your social media is much more effective. Very few franchises have cracked the code of how to get the franchisees to be effective at local marketing. From a social media perspective, one thing to consider might be a brand ambassador requiring every franchisee to have somebody on their staff that only deals with marketing. They purely deal with marketing; they have no other responsibilities. Therefore, anything that you annex to franchisees to be done locally will fall on this person shoulders who is not being distracted by any other duties. This approach can be remarkably effective.
Another really important aspect to consider in regard to the National Advertising fund is what fees you are going to run through the advertising fund. Some franchisors are very conservative and only charge for direct marketing like running TV or radio ads, creating a brochure, or just the creation of the TV and radio ads. They will run these items through, but they do not put any salaries or administration or travel through the fund. This extreme is probably not idea, you do often need to offset some administrative fees and salaries. If you want to have high quality staff running the ad fund, it is okay to take some of those items, but be a little bit cautious. When you start putting meals in, expensive hotel rooms, travel, and high administrative fees, that can be troublesome as well. It needs to be a balance and reasonable. Franchisors should want national funds to be used effectively because that is going to drive higher royalties because you will have higher store volumes.
A few other things to note before we end our episode is making sure that your sales team knows how to explain the great benefits of a well-run ad fund. There are a lot of times you’ll hear attorneys and franchisees barking about spending all the money that they give you back in their market locally. That’s just a real misunderstanding of the value of an ad fund and it comes from people probably seeing commercials for the big, big franchises all the time. Demanding all the money be spent locally is a misnomer because those brands likely have units everywhere commercials are running. Mostly these commercials are for things like food, and people need to eat three times a day. In those cases, commercials make sense. Unfortunately, in smaller brands and many service brands national ads would hit markets without full coverage and reach consumers who don’t have a need for the product or service. In the advertising world this is called waste. There’s no waste, because if you’re Pizza Hut running a pizza tv ad, pretty much everybody that sees it, young or old, rural or city, they all have to eat three times a day. And Pizza Hut probably has a franchise unit pretty close to anyone seeing the advertisement, so, you don’t have any waste. Whereas, if you are a plumber or garage door repair and you’re running those types of ads, you may not have a unit even close to them. Secondly, they may not need the service when they see the tv ad, conversely everybody needs to eat every day. You can see that people’s understanding of the ad funds are sometimes skewed by these big brands. So, it’s important that your sales team really knows how to explain the national franchise advertising program and the benefits. As the franchisor, instead of just waiting once a year and releasing the mandatory accounting of the fund, it is important to explain to the franchisees regularly what you are doing. Explain the management of the fund pertaining to the national level, regional level, and on a local level. Make sure the franchisees understand how the money is spent and how it enhances what they are doing locally, so that they can see that all the National Ad Fund efforts actually assist the local. Explain by managing the fund well you are stretching all the marketing dollars. So, a franchisee who is spending three, four, or five thousand dollars monthly may be getting the effective value of eight, nine, $10,000 of marketing.
So that is a little bit about the franchise or ad fun. We hope you enjoyed it!
Of course, as always, if you have detailed questions or specific questions about your situation, feel free to put them in the comments or contact us offline and we’d be happy to answer your questions in more depth. And if there’s any other topics you’d like covered, please put those in the comments and we’ll also create some videos on those topics as well.
The national advertising fund, national marketing fund or by any other number of titles, the fund refers to the fees paid by franchisees to the franchisor who manages and spends it for the benefit of the franchisees. In this episode we will look at the fund from the franchisee’s perspective.
Hi and welcome to another episode of All About Franchising. Today, we’re going to cover what can sometimes be controversial, the ad fund. In this episode, we’ll be covering the ad fund from a franchisee’s perspective and how to understand it a little bit better. We’ll also touch on, what an ad fund is, how they’re set up, and how they are sometimes managed well and sometimes poorly.
It is important to know, a well-run ad fund can be the biggest benefit in any franchise system beyond the initial product or service training. So, once you understand the business, having a very well-run ad fund is probably going to be your biggest benefit in the long run with a franchise. So, it’s really important to understand it.
In most franchises, there’s the National Ad Fund, the local ad spend, and then a co-op. You’ll see these fees in most franchise companies. Some ad funds are calculated by percentage, and some are done by flat fee, while others can be a combination in which you pay a percentage or the greater of the percentage or flat fee amount. So, we’re not going into too much depth on specific fees since they can vary greatly.
What is a national ad fund? A simple explanation of a National Ad Fund is that each franchisee pays a certain percentage or a flat fee every month, some franchisors collect the funds bi-weekly, but most usually collect the fees monthly. Then the franchisor, at their discretion, is able to use the money to promote the brand and franchisees, either directly or indirectly.
A national ad fund is usually combined with a local ad spend, allowing the franchisees to have some discretion where they spend the remainder of their monthly marketing money. So, let’s say it’s determined that it takes $4,000 a month in the first 12 months to get a business up and rolling and on its way to profitability.
The monthly $4,000 could be determined through a percentage of monthly volume, or the franchisor could charge a flat monthly fee. The franchisor would collect $2000 of the $4,000 and the franchisee will also spend $2000 locally each month. The $2000 would be paid to the National Ad Fund every month, and then the other $2000 would be spent locally by the franchisee at their discretion.
The local spend is still going to be determined somewhat by the franchisor. Most of the time the franchisor provides options for the franchisee on what to spend their local marketing funds on each month. The franchisor has already determined what marketing works and they provide a variety of proven options for you to allocate your funds to each month.
The co-op fund can sometimes get a little confusing, it just means that a franchisor can take a portion or all the National Ad Fund and your local spend and reallocate it to a regional, state, or local market. For example, let’s say the Olympics were coming to a certain state and they wanted all the money to go towards advertising to be a sponsor of the Olympics. The franchisor says, “for this six-month period, three months leading up to the Olympics, during the games, and for a couple of weeks after, we’re going to allocate all the national and local fees to being an Olympic sponsor”. That would be an example of how they might use the co-op fund. The main thing is that the co-op should not exceed the combination of the national and local spends. If you’re reading a franchise agreement and it doesn’t say the co-op should not exceed the combination of the national and local spend, you’ll probably want to ask for that to be put in the agreement.
The biggest misnomer by franchisees about ad funds, and I would even say by many franchise attorneys, is that they see companies like Pizza Hut, Subway, and McDonald’s, advertising regularly on TV, and they expect all franchises to do the same.
There are a few things to note about these large franchise companies. They are mature companies who have a lot of money in their ad funds, they have a huge number of units paying into their funds. And everybody has to eat three times a day. If you’re watching football on a Sunday, you’re going to see ads by those companies constantly because everyone who sees them needs to eat.
You would think that’s a big advantage and every franchise should be doing TV commercials. But that is not necessarily true. Those companies don’t have any waste in their advertising when they do mass media. Meaning everyone who sees the ads is likely needing to eat soon, and in most cases, there is a franchise unit nearby, so they don’t really have any waste by using mass media.
For smaller franchises that are growing, it really doesn’t make much sense to use mass media because there would be a lot of markets where there wouldn’t be a unit close by. The ads might hit markets where many people seeing them don’t have a need for the service. But for the large food franchises for example, their ads don’t have much waste, young and old, male, female, everybody needs to eat.
However, there are many products or services, let’s say something like house painting where mass media doesn’t make sense. There are many people who don’t own a home. So, does it make sense to have mass media as your number one marketing spend for a house painting franchise? Probably not. So, there are a lot of companies that shouldn’t be doing any mass media.
For the money contributed to the ad fund, emerging franchisors may choose to create ads, either TV ads or radio that can be personalized for the local market, with the cost falling to the franchisee to air the ads. It makes sense, because it takes the burden of creating the ads off each franchisee, and then the ads can be slightly modified for each market.
Creating advertisements can be a big benefit of an ad fund. Some franchisors create templates that can be anything from fliers and postcards, to sign packages and trade show booths. These benefits should not be overlooked because it does take time to meet with a vendor, design the item, pay for the work, and make sure the materials are effective.
Many franchisors have created vast amounts of templates for all sorts of different signs, graphics, and brochures, which is one of the big advantages of an ad fund. Ad funds may also provide items like one-on-one marketing coaching where experienced staff reviews and coaches you on your marketing options. Sales training is another service often provided from an ad fund.
There are other marketing items to consider as well, like pay per click advertising while you’re ramping up SEO. SEO being search engine optimization, which in some businesses, is the most important marketing item.
If you think about many service and repair businesses, when something happens, consumers want to find you now! Consider a business-like garage door repair. Your garage is broken, and you need it fixed immediately! Everybody is going to pick up their phone and Google, Garage door companies near me.
And if your franchisor has a good SEO plan in place and a quality website, they can drive those leads to you, and that can be worth its weight in gold. While a TV commercial might have no value at all for garage door repair companies, because 99% of the people seeing a commercial, don’t have a broken garage door.
One of the biggest mistakes in franchising is demanding the ad fund money be spent locally in the franchisee’s market. Lawyers and franchisees are often exclaiming to franchisors, you must spend a franchisees monthly ad fund contributions directly back into the franchisees market.
On the surface this seems to make sense, but if you think about the relationship with the franchisor, you’re going into that relationship because you think they’re good businesspeople and you want to be part of the franchise system. So, you don’t want to tie the franchisor’s hands as to how the ad money is spent. They’re experts at marketing the franchise. They have been in the industry much longer than you. They know what ads, brochures, and marketing techniques work and how to manage SEO. You need to trust in them to make good decisions with the pooled ad fund money. That’s why you’re joining the franchise. If you’re not confident in them managing the fund, you probably shouldn’t join the franchise. You want to make sure they’re spending the money wisely, but you want to give them the flexibility to do their job.
Franchisors do have to provide an accounting of the ad fund every year. So, you can review the ad fund spending and see where the money was used and based on your personal experience you can provide feedback to the franchisor.
Hopefully, this episode helped you understand National Advertising Funds for franchises.
If you have any questions or comments, please put them below and we’ll be responding to all your inquiries. By commenting, it also helps us determine what future episodes to create.
We appreciate you joining us for another episode of All About Franchising.
In this episode, we discuss if your business is franchise-able. Meaning, is your business a quality candidate for franchising. We will explore what items could exclude your business from being a good franchise and other important items to consider when deciding to franchise.
Hi and welcome to another edition of All about franchising.
A lot of people wonder, is my business franchise able? If you are an entrepreneur and you’ve thought about franchising your business, you may have asked this question and wondered, what’s the criteria for becoming a franchise? And is my business good for franchising? Well, the short answer is yes!
It’s likely your business is franchise-able. There are many companies that would have you pay a bunch of money to put all your criteria into their “franchise-able computer system” and see if it spits out a yes or no. But realistically, most businesses are franchise-able. However, there are some things that may hinder you from being a good franchise.
Some road bumps may be extreme upfront costs, and a business that is slow to grow. Other criteria that may eliminate you being franchise-able would be, if it would take an exceptionally long time to train someone to execute on the product or service. If training would require months, and months, and months, for someone to become proficient. That may be a hindrance to you being a good franchise and may lead to a lack of available personnel. Meaning, if it takes an extremely high skill level to produce the product or service, there’s probably not going to be a lot of people to hire. So, if the initial folks that were trained- quit, or as the franchisee expands, they needed more staff, it might be hard to find staff or get them trained up in time. Those are some things that may eliminate you from being a good franchise.
Something that may determine you would be a good franchise is, a proven business model. There are a lot of questions about this topic, so we’re going to go into this in another video. But the short answer is…it’s not 100% necessary to have a long-term business model to franchise. People have started successful franchises off just a concept. Some have done it with only one or two units, while some companies have waited until they had many units before starting to franchise.
A few other items to consider are, can the main product or service be learned pretty easily? Is it a simple product we can teach someone to do in a few weeks’ time? Is the overall investment reasonable? Obviously, the lower the amount of the investment, the more suitors you’re going to have, the more possible buyers that you could have. Other considerations are, can the business become profitable in a reasonable time period? Most quality franchises are going to be turning a profit in about a year to 18 months at the longest. It doesn’t mean the franchisee has to be making a lot of money, but the franchisee must be able to see the path to making money earlier than you might in your own private business. Another consideration is, can the franchisee continue to grow the profit over the years?
There are exceptions to these criteria because there are businesses like Mailbox, etc. that became UPS Store, where they didn’t really expect there to be high, high profit from a single unit. There are different types of franchise models. Your business model may not be a model where someone buys one single franchise and makes an exceptionally good living. It may be one where someone buys one unit and then a second or a third over time, like a Mailbox/UPS type situation. The individual UPS Store units don’t make a ton of money. And if you the franchisee puts in a manager, obviously they’d make a bit less. But as the franchisee went on running the business and paid off the equipment and debt, after about five years, then the profit goes up considerably.
Since the UPS units don’t require a lot of maintenance and are not intense to operate. People would buy two, three, four of them, and then when they had them all paid off, they could sell them all at a nice profit.
So, there are a lot of different models, and the success of a franchise is not always about having the highest-volume single franchise units, where the franchisee could make a remarkably high profit. Sometimes people just want to be their own boss. They don’t necessarily have to make a fortune. The franchise owner may be the second or third income in a family. So, there are assorted flavors to franchising. Most likely your business is franchise-able, as long as it doesn’t run up against the major criteria points we covered, that may make it unattractive.
A final item to consider is if the business requires a special license, that’s really hard to achieve. However, even if you have a special licensing requirement, it does not mean your business is not franchise-bale. Consider medical type businesses that do require a medical license, you could still franchise and only sell to doctors in those cases or people that have the specific type of license.
So, most businesses can be franchised.
If you have questions, it is best to seek out an expert and see if they can help with determining if your specific business is a good fit for franchising.
If you have any questions or comments about the video or general questions about franchising, please put them below. We will be answering questions from time to time and doing videos on some of the topics from comments left below.
Thank you for coming to another episode of All About Franchising!
Hi. Welcome to another episode of All About Franchising. So, today we are going to take a little bit of a step back and we are just going to talk about what exactly is franchising. Well, the simple definition is just paying someone to teach you a business, they already have experience and skills in. That is a pretty basic idea, most people can understand.
Now, there is more of a book type explanation of it or definition. And that would be, a franchise is a type of license that grants a franchisee access to the franchisors proprietary business knowledge processes and trademarks, thus allowing the franchisee to sell a product or service under the franchisors business name in exchange for acquiring a franchise.
The franchisee usually pays the franchisor an initial setup fee and annual licensing fees. So, I think between those two definitions, it makes common sense, and most people can understand that. As we look at it a little bit further, typically you are going to have an initial set up when you are coming into the business. They are giving you all the infrastructure, what equipment to buy, what type of location, do you need vehicles and marketing and advertising, grand opening signage, all these basic things to set up the business and you are going to pay an initial fee for that.
And then a lot of times there’s ongoing fees or for continuing assistance. So, as things change or you grow, they are there to assist you and help you along the way and you are going to pay monthly fees as they assist. Now, some folks might think, well, what do I really need them from after I get kind of out of the gate, and I am running the business?
Well, there are a lot of big advantages that you will continue to garner from a franchise if done properly. So, we can talk about a few of those initially and ongoing. Obviously, being part of a franchise eliminates a lot of the unknown, you have a partner in business, somebody you can lean on an exchange ideas with, and you will have some buying power.
So, if you are in the business longer and you are running a big unit, you will have the opportunity to buy from the company vendors at a discount typically, and also be getting better service. And something a lot of times people do not think about is higher sale value as well. Many franchise franchise units will sell at a higher multiplier than what an independent business would sell at.
So, those are some of the benefits of franchising.
Now franchising has changed a little bit from the past. In the past most brands were in business for quite a long time before they ever decided to teach the business to someone else. But now it is not unusual for businesses to franchise just off a concept or having just a couple of units and then franchise the business earlier in the process. Because of the infrastructure in the franchise industry now, that is a fine option as well. So, whether you are looking for a very well-established franchise or more of a startup brand will depend on, your risk aversion or what you are looking for- either one can be a good option. So, that is the basis of what a franchise is. If you have any questions, please feel free to put comments below.
Certainly. Any other topics you would like to hear about, always let us know. And we appreciate you joining us again for another episode in all about franchising.
