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The most pivotal decisions you will make as a new franchisor involve your strategy for program structure. These decisions, ultimately, affect key aspects of the offering – including the targeted franchisee, support requirements, staffing needs, cost structure and more. Thus, franchisors pursuing growth reasonably and efficiently will approach this phase of development with the utmost consideration, and understand the nuances of each approach in order to make strategic structural decisions that suit the short-term and long-term vision.
Pace yourself with single-unit franchising
Most new franchisors tend to utilize this structure as a starting point for their franchise efforts, as it allows the greatest control over unit operations. Should you choose this route, you should regularly evaluate your resources, since ongoing support for a large group of single-unit operators can become expensive and a growing network will require more streamlined training and communication. Though this option may foster a slower growth rate compared to more aggressive strategies, you could essentially “grow your own” multi-unit operators, as exceptional single-unit owners with the capacity to sustain additional locations reveal themselves over time.
Target independent operators with conversion franchising
Depending on how fragmented your marketplace is, you might consider awarding a single-unit franchise to those who are already running a similar business. From a lead generation standpoint, these candidates are easily identifiable and already familiar with the intricacies of the business, so you could benefit from a lower cost-per-lead, as well as reduced training and support costs. Because these candidates come with existing clientele, they’re likely to pay their royalties sooner, as well.
The challenge is weighing dollars saved against the reduced fees that are often extended to conversion prospects as an incentive to invest. Additionally, should bad habits persist and render them a threat to your system, the post-termination agreements can be tough to enforce. Overall, the key to conversion franchising is establishing “incremental value” on the part of both the operator and the franchisor company.
Leverage seasoned multi-unit owners through area development deals
These agreements involve the sale of development rights to a territory within which an area developer agrees to open and operate a set number of franchised units on a predetermined schedule. Target franchisees typically include multi-unit operators of other systems, which makes them easier to market to and, eventually, support. However, the market to attract these operators is highly competitive as plenty of other franchisors vie to capture their interest and investment. You might also consider that many area developers fail to open the number of locations called for in their development agreement. If an issue should arise with an area developer, the growth of his or her territory might come to a halt until the point of resolve. Nonetheless, if your business model lends itself to passive ownership and your unit economics are strong enough, pursuing these prospects may be worthwhile.
Choose to delegate with an area representative strategy
A form of subfranchising, area representative agreements sell an area representative the right to sell and support franchisees in a market in return for a split of fees and royalties. Unlike “subfranchising,” however, it is the franchisor – not the master franchisee – that enters into contracts and collects the monies from individual franchisees. In this way, the franchise company maintains more control, making area representative franchising more appropriate for domestic franchising than the subfranchising alternative. Since area representatives provide ongoing support and regional training, this strategy takes the onus off of the franchisor to have a large infrastructure in place on a corporate level. In making this decision, you must consider the economic trade-off for splitting fees and royalties with a middle-man, as well as how you will standardize quality control and franchisee support. While these agreements help franchise systems grow substantially faster compared to other avenues, they are not right for every franchisor.
Whether you want to expand in stages or pursue large-scale growth, there are plenty of ways to tailor your franchise offering. You may even start with one strategy, and then transition to another as budget and unit performance allow. Grow at an appropriate pace, prioritize franchisee support, and make sure you understand the financial and operational aspects of these alternatives, and you will have a much greater chance of success with your chosen strategy.
Mark Siebert is CEO of the leading franchise consulting firm iFranchise Group. Reach him at 708.957.2300 or firstname.lastname@example.org. His book is “Franchise Your Business: The Guide to Employing the Greatest Growth Strategy Ever.”