Part of knowing how to franchise a business is knowing how you are going to sell your franchise. The concept of outsourcing the franchise development function of a franchisor’s business is nothing new. Historically many startup concepts, which often lack the necessary capital and infrastructure required to generate unit growth, reached out to franchise consultants to provide a professional level of franchise sales services. Today, franchisors of all sizes often look outside to handle some or all aspects of their franchise sales process. This has proven to be an attractive alternative because it frees up a franchisor’s time and resources to focus on the success of their franchisees.
Why Franchisors are Outsourcing Their Sales
To understand why outsourcing has become such a popular option, franchisors need only look internally at their current sales efforts. Answer these questions, honestly and objectively:
- Is your sales team effective at generating sales? Have they historically met goals and forecasts?
- Internally, who will manage the franchise sales consultants?
- Do you understand the current cost associated with the sales department? (Salaries, overtime, bonuses, office expense, travel and entertainment etc.)
- Do you understand the complete costs of a franchise consultant? (Commissions, management fees, software fees, minimum add spends)
Recruiting a Franchise Sales Professional
Over the last seven years the number of franchisors entering the market has more than doubled. This has created a buyer’s market for quality franchise development personnel. Startup franchisors often find it difficult to compete for the few seasoned franchise executives available in the market place.
The challenge to attract the right person is twofold;
- Expense: The cost associated with recruiting and potentially relocating a sales executive can be significant – even one with modest franchise experience can easily command a six-figure compensation package. And the initial compensation package is just the beginning. In addition, costs will be incurred for lead procurement to generate the number of prospects necessary to justify the compensation being paid to the sales executive. Additional support personnel will be needed to fill lead-marketing and clerical positions. Other expenses rounding out the complete sales budget include office space, desk, computer, phone, contact management software, etc.
- Creating Desire: Seasoned franchise sales professionals are unlikely to risk their career path to work for a young franchisor. Their concerns include the franchisor’s level of business acumen, franchise experience, financial resources, and the long-term commitment necessary to support a franchise sales program. These unknowns with all startup concepts make the experienced sales professional very reluctant to leave an established franchise company unless there are significant offers of guaranteed cash or equity in the new venture.
Challenges in the Current Economic Climate
The economy is recovering, but still not in good shape. The business climate demands careful allocation of company resources. All companies, both large and small, are looking for ways to reduce expenses without losing productivity. Retaining the in-house sales staff while reducing the lead procurement budget to reduce expenses makes reaching budgeted sales goals almost impossible. Instead, franchisors can reduce expenses by outsourcing their sales function and then increase the lead procurement budget with some of the savings. The trajectory of the business remains on a positive slope while at the same time freeing up management to direct their time, energy and focus on internal operations and franchisee initiatives.
The Outsourcing Decision
Outsourcing can bring many benefits, but the decision requires careful planning. The selection of an outsource company should be conducted with the same due diligence exercised in hiring a new employee. They should have the proven experience, professionalism and expertise a franchisor would expect of someone representing them to prospective franchisees. Franchisors should find a firm that is a good match with their own culture, image and brand. There must be agreement on realistic sales goals, expectations, performance measurement and compensation. In addition, a comfort level must be obtained over the degree of control a franchisor will have over an outsourced organization.
A careful financial analysis of outsourcing should be conducted. At the end of the day, the franchisor wants to insure they will save money and increase sales. With a minimal sales budget, there would typically not be enough prospect generation to justify a fully formed internal sales team and outsourcing may be the best choice. On the other hand, if the franchisor plans to become extra aggressive with their lead procurement budget and therefore has expectations of a large amount of sales activity, perhaps the analysis will show that outsourcing is the more expensive alternative. This cost-benefit analysis will help in making a decision.
Once an outsourced firm has been retained, the franchisor still has obligations to manage the relationship. During the transition, the outsourced firm needs to gets fully trained and conversant in all aspects of the franchisor’s operations and especially in the franchise opportunity. After that, performance needs to be monitored, goals analyzed and expectations reviewed. Also, the outsourced company should be required to attend additional training sessions and be kept aware of any legal issues or pending changes to the FDD.
And finally, a good franchise attorney should review any agreement to insure that all legal risks related to selling franchises have been mitigated as much as possible.