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Typically, franchisors focus on finding franchisees. They spend tens of thousands of dollars annually to exhibit at expos, run ads in magazines and newspapers, and post their banners on Web sites, all for the purpose of getting a prospect to ask for information about buying a franchise.
Staggering cost of capturing franchisees
We know, based on annual studies and best practices, that it costs a franchisor about $10,000 to find a qualified lead, and to sell a franchise, well, the cost is staggering — it may be $25,000 to $40,000. When you think that it’s a break-even proposition for most franchisors to sell one new franchise (read this article), you’ve got to wonder why all these companies are trying to sell franchises — at least 2,000 to 2,500 of them in North America alone!
Well, it doesn’t bother me that it’s a break-even proposition because the real value of a franchisee is a lifetime of royalties. You get a franchisee paying you $25,000 to $50,000 annually — and maybe much more — and you suddenly understand the value of franchising to the franchisor.
Now if only all franchisors understood it!
Revisiting what business you’re in
Most franchisors, in fact, don’t seem to know about the lifetime value of a franchisee. And that’s because they don’t know what business they’re in. They think they’re in the pizza business, or the people business, or the American Dream Building business, or the customer service business . . . God help them!
It’s kind of funny, though, isn’t it? We’ve got all these companies that claim to be in the customer service business, the problem-solving business, the people business — and we’ve got horrible customer service, lots of problems, and tremendous issues related to people in business!
Franchisor’s job is to capture and keep customers
But I digress, and I covered all this in an earlier blog (read this article). . . I repeat it, however, because most franchisors don’t get the message. They don’t understand that there’s only one business to be in, and that is the business of capturing and keeping customers.
Franchisors generally do a pretty good job of capturing franchisees (thought most could improve their practices dramatically just by implementing a better follow-up system), but they don’t do nearly as well at keeping them. Some franchisors have a turn over rate of nearly 50%! It’s not uncommon for the turn over to be in the range of 20% to 30%. The average American-owned business, according to recent studies, loses 10% of its customers annually — that means the business replaces half of its customer base every 5 years!
How much are you budgeting to keep franchisees?
Smart franchisors focus on keeping their customers – their franchisees. While most franchisors don’t even budget for keeping franchisees, smart franchisors make that budget item a priority.
The economics of keeping a franchisee for a lifetime are fairly simple. If it costs you $40,000 to capture a franchisee, and the franchisee pays you $40,000 (if you’re lucky) after the first 12 months in business, you’re at break-even. Twelve months after you invested your money! Lose the franchisee now and you’re in trouble!
Here’s the value of franchising
Second year, the franchisee pays you — if you’re lucky — $40,000 in royalties and other fees. Third year the same. Five years, ten years, 15 years . . . $40,000 a year! Now you know the value of franchising to a franchisor. And remember, that value should include the franchisee helping you recruit more franchisees (which I also covered in a previous article).
Let’s say you spent $5,000 a year just to keep the franchisee. Was it worth it? Obviously.
How much does it cost to maintain the value?
And most franchisors don’t spend anywhere near $5,000. Granted, they may not need to. Might take considerably less to keep a franchisee year after year. Might take as little as $500 a year — perhaps sending the franchisee a special gift now and then, or treating the franchisee and his team to breakfast or dinner.
But many franchisors don’t spend anything to keep franchisees. Why? Three reasons:
- They don’t know that they should.
- They haven’t seen the economic value.
- They’re focused on capturing new franchisees. That’s where the action is! They think they’re gaining market share by adding franchisees. Meanwhile, they’re very likely losing money!
It’s easier to keep than to capture
They’re at least losing opportunity and giving up easier money. Because it’s a whole lot easier to keep a customer once you’ve got one, that is to find a new customer!
So how can a franchisor keep franchisees?
Numerous ways to keep franchisees
Lots of ways. I won’t comment about the obvious: training and support. Yet, I will suggest that franchisors look at how well they’re really doing in those areas. Because many franchisors aren’t doing that well (or there wouldn’t be all these horror stories from former franchisees on the Internet).
I also won’t focus on the value proposition. Can the franchisees make money? Let’s hope so, but again, that’s often times the issue. In spite of their best efforts, the franchisees can’t make money because the franchisor hasn’t provided a good system.
I’m also not going to comment on conventions and meetings. Just about every franchisor sponsors them. They’re an opportunity to train and support franchisees, as well as recognize the top performers (smart franchisors know that’s very important).
Three ideas every franchisor can use immediately
Here are just three ideas that every franchisor can start doing tomorrow to keep more franchisees:
- Call them! Forget about email. Forget about the company newsletter or blog. Pick up the phone and say this: “What can I do to help you build a more satisfying and profitable business today?” . . . You won’t hear anything for a moment because the franchisee will be stunned. They’ll figure it’s a joke, or you’re about to hit them with the real reason for your call. Just wait a moment and let them process your question. You may have to repeat it. And they may tell you, “I don’t know.” That’s not because they don’t know, it’s because they’re still in shock. Tell them to think about it for a day and you’ll call them again . . . because you really do want to know. If you can help them build a more satisfying and profitable business, you’ll keep them for a lifetime! By the way, the CEO needs to make this call. Smart ones do.
- Coach them. Every week. Every franchisor provides support. Value varies from franchisor to franchisor. Ask franchisees about the support and sometimes they’ll laugh and say, “Well, yea, you can get support if you can get them to call you back.” Forget support. Coach them to success! Designate a staff member who does nothing but coach franchisees by phone — all day. The coach will need a script. The coach will need to be coached. And once the coach goes to work and gets results for franchisees, the news will spread quickly that the franchisor has added to the value proposition. Franchisees who are being coached tend to stay for a lifetime.
- Create a mastermind. At a certain point in their development, franchisees really do know more about the business than does the franchisor. That’s when they start asking, “Why do I need to sign on for another term with this franchisor? I can do this business blindfolded. I don’t need them!” Chances are, they don’t. And what a huge loss it will be to you if you lose them. Seasoned franchisees love masterminds. It’s an opportunity for them to meet periodically with their peers to compare notes, to learn from each other (without the franchisor involved) and to hold one another accountable. Masterminds tap into the real reasons why people buy franchises — and smart franchisors are all over those reasons. When a franchise continues to satisfy the needs of the seasoned franchisee, the franchisee stays for a lifetime!
Keep the franchisees you want to keep for a lifetime
There you have them — three fantastic ways for you to keep franchisees for a lifetime. There are many more. You don’t have to use them all. You just have to use enough of them to keep every franchisee (who you want to keep) for a lifetime. Yea, there are some franchisees you do not want to keep — but we’ll talk about them in another blog.
Smart franchisors are in the business of capturing and keeping franchisees . . . and for them, there’s no question about the value of franchising. That’s because they keep most of their franchisees year after year.
. . . Helping Franchisors Capture & Keep Customers
Franchisors: I’ll help you create programs to keep franchisees for a lifetime! I’ve created coaching and mastermind programs for franchise companies. Call me for more information: 972-334-9466. Or send an email.
Photo image by: Ringo Ichigo
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