Auditing the Health of Your Franchise Organization by iFranchise Group

Auditing the Health of Your Franchise Organization Paradigms and Processes

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Five years in a row voted the #1 Franchise Consulting Firm in North America in an independent survey of over 900+franchisors More hands-on experience than any other firm ◦ ◦

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Consultants with over 900 years of franchise experience 98 out of the top 200 franchise companies

More “senior level” experience ◦ ◦

Hands-on experience at start-up and established franchisors Former CEOs, CFOs, EVPs of more than 65+ different franchise companies 

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The ability to bring more resources ◦ ◦

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Adia (now Adecco), Armstrong Tile, Auntie Anne’s, Dunkin Donuts, LINE-X, Pearle Vision, McDonald’s, PIP Printing, Schlotzsky’s, Snap-on Tools, Snelling & Snelling, and other national brands

Faster completion Ability to provide assistance in several areas simultaneously

Breadth across four functional areas ◦ ◦ ◦ ◦

Strategic planning Quality control Marketing Organizational development

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Franchise experience in 50+ countries

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Numerous other awards and publications

iFranchise Group Success Cycle Concept & Value Proposition Offer/Structure

Validation

Sales Communication

Marketing Plan

Ongoing and Field Support Message & Materials Opening Assistance

Advertising Expenditures Documentation & Training Selectivity

Sales Process 3

iFranchise Group Success Cycle Concept & Value Proposition Offer/Structure

Validation

Sales Communication

Ongoing and Field Support

Marketing Plan

Holistic Process

Message & Materials

Opening Assistance

Advertising Expenditures Documentation & Training Selectivity

Sales Process 4

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Can test the waters in a variety of ways:   

Mystery shopping a sample Branded phone surveys Branded electronic surveys

Be prepared to listen to their responses  And be prepared to act accordingly  Consider the development of a Franchise Advisory Council  Validation Helps Franchisees (buying power, larger system, etc.) 

Auditing Core Strategy Concept & Value Proposition Offer/Structure

Validation

Sales Communication

• Starts with the concept • Must have strong value proposition • Must understand competition

Marketing Plan

• Sustainable competitive advantage Ongoing and Field Support

• ROI commensurate with Risk • “Me Too” is not a Strategy Message & Materials

Opening Assistance

Advertising Expenditures Documentation & Training

Selectivity

Sales Process 6

Auditing Marketing and Sales Concept & Value Proposition Offer/Structure

Validation

Sales Communication

Ongoing and Field Support

Marketing Plan

Four core areas of marketing and sales can easily be confused, and people often jump to conclusions.

Message & Materials

Opening Assistance

Advertising Expenditures Documentation & Training

Selectivity

Sales Process

When making decisions about correcting a sales and marketing problem, you will be getting imperfect information. For Example:   

Competitors are selling faster than you are Your close rate is “low” Is it really “low”

◦ Based on your industry? ◦ Based on the size of your investment? ◦ Based on your brand prominence?

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Your franchise salesperson says that the leads are not very good Your franchise marketing person says that the salesperson cannot close

Easy to jump to the wrong conclusion and make a decision that will not solve the error

Understanding the statistics will provide you with an understanding of what might be broken. But you need to have a statistical sample to start. For Example: 

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Situation one: in analyzing your KPIs, you find that one salesperson has a very low percentage of people coming in for face-to-face meetings but has a very high close rate of those that come in to meet. Potential problem: trying to sell the franchise over the phone instead of selling “Discovery Day” Situation two: in analyzing KPIs, you find that one salesperson seems to have a high drop off rate between the first and second call. Potential problems: failure to set an agenda, failure to explain the process, failure to establish specific dates and tasks.

Diagnosing Sales Problems

Publicity

Brokers

Trade Shows

Direct Mail

Internet

High leadIndicate costs Could Lead could indicate Concept Problems media selection problems Low conversions could Face-to-Face/Discovery Dayof In indicate short, close analysis Could indicate Poorvarious marketing materials media-specific, Salesmarketing, problems and sales statistics, -Urgency can be indicative of where Agenda Low conversions Few leads -Setting problems exist, allowing couldmay indicate Close could indicate -Closing Skills for appropriate corrective poorofsales skills or action. lack broker poor validation confidence

Referral

12 - 14 weeks

Marketing and Sales Audit Process Sales Factor

Potential Problems

Symptoms

Diagnosis

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High unit investment Financial performance Look and feel Franchise structure Value proposition Franchisee validation

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Bad/No P.R. Low unsolicited inquiries Losing sales to competitors Repeat objections not overcome Prospects go dark after validation

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Evaluate design/construction model Comparative financial analysis Evaluate unit economics/ops Contract comparison Marketing comparison Phone interviews of franchisees Franchisee satisfaction surveys (web) Evaluate real estate portfolio Survey “lost” sales

Franchise Lead Generation

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Media Selection Media Mix Message Ad Spend Target Audience Timing

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High lead costs Low close rates Message confusion Few qualified prospects Low quality lead sources predominate

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Historical vs. norms Media specific analysis Performance vs. competitors Message vs. competitors Franchisee or competitor surveys

Franchise Marketing Materials

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Target Audience Materials Used Message Inadequate differentiation Design Quality Production Quality

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Bad/No P.R. Low unsolicited inquiries Losing sales to competitors Repeat objections not overcome Lose sales to market leader Low application rate

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Review for best practices Message based on surveys Application rate vs. norms

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Lead handling Follow up Effective Process Sales Skills Salesperson Motivation Sales Tools Staffing v. Goals

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Low application rate Low discovery day rate Low close rate Long “time to close” Variances in salesperson close rates Un- or under-worked leads Few broker leads

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Historical vs. norms (close, speed, etc.) Salesperson vs. salesperson Historical vs. past performance Develop sales process map Mystery shop sales force Leads per salesman Sales per salesman Broker validation calls

Franchise Concept Itself

Sales Process & Technique

Problem Resolution – Phase Two Sales Factor

Franchise Concept Itself

Franchise Lead Generation

Franchise Marketing Materials

Sales Process & Technique

Confirmed Problem • • • • • • •

Unit investment Financial performance Look and feel Franchise structure Value proposition Franchisee validation Real estate model

Potential Solutions • • • • • • • •

Value engineer design and construction process Suspend sales and work on business model, support, franchisee training Retain design firm, consumer marketing firm, or PR firm as appropriate Revise franchise business structure Provide incremental value or reposition concept Communications plan, FAC, address survey-specific concerns Improve real estate process Develop third-party financing programs

• Alter of marketing to focus on higher-quality lead that sources The vast majority themixtime, we find • Alter message based on survey results • Increase advertising expenditure based on goals it is not just one thing that is broken. • Optimize website and PPC campaigns • Develop and measure benchmarks; rotate bottom 10% quarterly Instead, it is a combination of multiple things that can be improved incrementally • Target Audience • Rewrite, redesign, and reprint materials as appropriate • Materials Used • Develop or revise standard sales correspondence that will lead to improved close rates. • Message • Rewrite and redesign web pages as appropriate • • • • • •

Media Selection Media Mix Message Ad Spend Target Audience Timing

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Develop formal marketing plan based on survey results

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Inadequate differentiation Design Quality Production Quality

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Add technology improvements (auto-responders, sales software, etc.) Develop additional promotional tools (video, etc.)

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Lead handling Follow up Effective Process Sales Skills Salesperson motivation Sales Tools Staffing v. Goals

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Develop and map effective sales process Train sales staff and provide guidelines to non-sales staff Replace poor sales personnel Benchmark and measure performance Alter compensation Evaluate external resource opportunities (FSO, LQS, software solutions) Add sales professionals, support staff, or both Proactive broker programs

Different franchises systems require us to target different types of franchisees – affecting the media and message used for effective marketing. For Example: 

Identify your prospect as narrowly as possible ◦

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Survey Competitors: 

Background

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Hot Buttons

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Media

Survey Top Franchisees 

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Survey Lost Opportunities

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Blind surveys of competitors

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Using Social Media to identify franchisee backgrounds

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Characteristics of top performers

Doing surveys of where your competitors are advertising and where they are not

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Analyzing competitive messaging

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Repurpose bottom 10%-20% of marketing spend on a regular basis

As we monitor KPIs, we must bear in mind that our historical viewpoint is being distorted by time.  

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The average franchise sale takes 14 weeks to complete. If we advertise in a media that has a relatively stable audience, we might saturate that audience in three or four months. So, in month 6 through 10, we might see good franchise sales numbers and be inclined to continue using that publication. We may have extracted most or all of the gold that was to be had in that particular mine. Our human nature may tell us to continue to use that particular media if it has been productive in the past – especially if we are comparing it to a media that we have been in for only three months without any results. So, measuring the right KPIs (cost-per-lead) may be more important. Whereas KPIs like cost-per-sale may give us a measure of quality, we need to consider whether a media is giving us diminishing returns.

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Franchise marketing is very different from consumer marketing

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Are you “me-too” marketing?

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Are you making “The Five Sales” ◦ ◦ ◦ ◦ ◦

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Go into business for yourself Buy a franchise Invest in your industry Invest in your specific franchise The timing is right

Have you developed your materials professionally – again, compare them to your competitors Be sure to have your attorney review all materials -- highly regulated

Source of Franchise Leads by Media Percentage of Total Leads Received: 2011-2021

80% 70% 60% 50% 40% 30% 20% 10% 0%

Internet/ Your Print Digital Franchise Opportunity Website 2011

2012

Referrals

2013

Trade Shows

2014

2015

P.R.

Email Mktg.

2016

Source: Franchise Update

Direct Mail

2017

TV/Radio Brokers Unknown

2018

2019

2020

Other

2021

Breakdown of Expenditures on the Internet/Digital 2016-2022

70%

60%

50%

Many of these leads are being generated from sources that are the least effective.

40%

30%

20%

10%

Franchise Opportunity Sites

Other Business Media

PPC

SEO

2016

2017

Email Marketing

2018

2019

Social Remarketing/ Networking Target Trailing

2020

Source: Franchise Update

2021

Social Media Advertising

Digital Asset Creative

Sponsored Franchisee Survey (option)

Mystery Shop Franchisor’s Sales Force

On-Site Interviews and Planning Session

Franchise Sales Process Mapping

Qualitative Analysis of Franchise Messaging

Qualitative Analysis of Marketing Tools

Statistical Analysis of Sales Results vs. Norms

Recommended Changes to Current Practice

Franchise Marketing Plan or Sales Training (options if needed)

Auditing Core Strategy Concept & Value Proposition Offer/Structure

Validation

Sales Communication

Marketing Plan • Tools • Goal Driven Planning

Ongoing and Field Support

• GAP Analysis • Organizational Growth Plans • Financial Analysis

Message & Materials

Opening Assistance

Advertising Expenditures Documentation & Training Selectivity

Sales Process 25

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Role as a sales tool

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Role as a training tool

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Role as a reference tool

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Role as in reducing liability

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Extension of the legal documents

Have your manual professionally reviewed at least once per year and put someone in charge of manual updates and revisions.

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A good Operations Manual can help you avoid litigation A bad Operations Manual can be a franchisor’s worst nightmare Operations Manuals must provide you with adequate brand control but should not be too prescriptive – a fine line  Brand Standards  Best Practices -- Recommendations

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Must avoid creating an inadvertent “agency” relationship or joint employment relationships Must avoid potential areas of negligence or take great care when prescribing actions – especially in areas such as HR

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I told you not to panic! Everything will be just fine.

"Some people seem to think there's no trouble just because it hasn’t happened yet. If you jump out the window at the 42nd floor and you’re still doing fine as you pass the 27th floor, that doesn’t mean you don’t have a serious problem." – Charles Munger, Vice Chairman, Berkshire Hathaway – 28

Discussions with Key Stakeholders

Review existing material, forms, & documentation

Develop preliminary outline

Determine gaps in current documentation

Assign responsibility for content creation

Identify Subject Matter Experts for gaps

Interview Subject Matter Experts

Onsite observation of units & documentation

Resolve Best Practices Conflicts

Draft material to cover all identified gaps

Edit all material into common style & “voice”

Revise first draft of Operations Manual based on client & legal input

 Faster growth requires formal training programs

◦ For your staff ◦ For franchisees

 Focus on training the trainer (your franchisee)

◦ Franchisee will train their staff – avoid joint employer issues ◦ Should have tools to do so

 Video pushes QC to lowest level of organization  On-line training decreases costs, increases

quality, and can decrease liability

◦ Customized by employee ◦ Document what is reviewed and test scores ◦ Lowers on-site training time and costs for both the franchisor and the franchisee

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Establish long-term goals first Do NOT try to establish value from growth Goals drive your business. Start with support and cost structure. What do you need to do to help your franchisees succeed? Reverse engineer your success. Annual planning process not just for franchisees but for you as well GAP Analysis to Determine organizational needs

Goal

Sell for $20M in 5 Years

Average Selling

15 times EBIT

Year Five Earnings

$20M/15 or about $1.3M

Average Royalties

$30,000 per franchise

Average Net Royalties

$10,000 per franchise

Need to sell

$1.3M/$10,000 = 130 Franchises

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Sales

5 34

Hire Franchise Salespeople 50

Sales

5 35

Hire Field Reps

Sales

5 36

Hire Support Staff

Sales

5 37

Sales

Personnel Marketing Office Space Brochures

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Onboarding and Support Concept & Value Proposition Offer/Structure

Validation

Sales Communication

Ongoing and Field Support

Opening Assistance

The faster your franchisee opens their doors for business and the faster they achieve profitability, the more likely it is that they will succeed and the more likely it is that they will validate well. At the same time, a faster and more effective opening will reduce your costs and allow you to bring on more franchisees faster.

Marketing Plan

Message & Materials

Advertising Expenditures Documentation & Training Selectivity

Sales Process 39

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Designing a streamlined process for site review and acceptance, permitting and licensing The design and build-out process (hiring an architect, contractors, etc.) Required equipment, POS, pre-opening supplies, establishing vendor relationships, etc. Hiring and training initial staff Competitive survey and pricing Grand Opening promotion procedures, using a “soft opening, role of your opening team Force-feeding sales early Your role and the role of the Grand Opening Team Week-by-week activity countdown checklist Insurance administration and compliance systems Establishing and maintaining file systems, tracking ongoing communications Details of the field consulting role and processes for conducting site visits Specific checklists and scoring Assisting franchisees while not on-site/communication plan Benchmarking Key Performance Measures Franchisee reporting, accounting, and auditing – Use of Third Parties in Year One Sharing of best practices within your system Ongoing measurement of franchisee satisfaction

The Audit Process Assessment Goals/Mission Defined Human Resources Strategic Audit

Franchise Structure Value Proposition Adequacy Competitive Positioning

Franchisee Survey Validation & Communication Audit

Refinement Develop staffing plan, organizational map, and growth plan Determine desired relationship changes Financial Projections based on changes Develop Implementation Plan

FAC Utilization Potential problems?

Message Refined Franchisee Profile Honed Collateral Material Strong Sales Process Adequacy Tracking in place Training Assessment HQ Support Assessment Quality Control & Onboarding Audit

Recruit additional staff if necessary

Communications Tracking Develop Value Proposition and U.S.P.

Communication Vehicles

Marketing and Sales Audit

Implementation

Personnel Adequacy Monitoring adequacy Systems documentation

Develop communication vehicles & implement plan Revise training and document as necessary Develop and document systems as necessary Revise Operations Manuals as necessary Train internal staff as necessary Develop Monitoring Procedures and Tools

Recommended Changes to Program

Revise Agreement and FDD Submit and Finalize State Registrations

Introduce New Franchise Structure

Develop marketing materials as necessary

www.ifranchisegroup.com 708-957-2300

If you would like a copy of this presentation or a complimentary book, please provide me with your business card. If you are seriously considering a rewrite of your operations manual, we are happy to do a review of that document as well.