Market Your Franchise

One of the greater challenges in franchising, and ultimately the one which will decide whether a franchise will succeed or not, is the question of how to market your franchise company. If you do this the right way, then you will have no shortage of potential franchisees applying for the opportunity to purchase franchising rights from you.

It is important to realize that many franchise companies have gone bust simply because they were not able to develop a large pool of franchisees. They failed to sell their respective concepts to their target audience. If you do not want to end up in a similar situation, then you must take the initiative to market your franchise effectively. Make sure that you are promoting it to people who are likely to be interested in it, and who will actually make the effort to invest their resources in it.

 

How Can You Market Your Franchise Effectively?

 

How will you identify the ideal audience for your marketing efforts? Well, it certainly won’t hurt to engage in some preliminary research. Find out who is likely to want to buy a franchise unit by talking to the franchisees of your competitors or of franchise companies similar to your own. The idea is to find out from them what exactly convinced them to buy franchising rights from particular franchise companies rather than others.  What features did they find attractive in the proposed franchising deals?

One of the things that you are likely to find out in your research efforts is that, for every franchise company that has been successful in gaining franchisees, there is a feature that makes it stand out when it is compared to similar franchising companies. The product offered might be unique. Alternatively, it may be the services offered which stand out. Ultimately, the franchise company has to have a unique selling proposition. If you have one of these, then you will fare better in your attempts to market your franchise.

Another critical part of effective marketing entails paying attention to such details as your franchise trademarks and to the terms you offer your franchisees. Your franchise trademark should be simple, distinct, and easy to tie back to whatever it is that your franchise company does. This will make it easier to remember and will, consequently, facilitate your efforts to market your franchise to a sympathetic audience. As for the terms that you offer your franchisees, it should be obvious that, the more favorable these are, the more likely they are to want to read your franchise disclosure document and to eventually buy franchising rights.

Franchisor Liability

Being a franchisor is not just about being at the top of the franchise system. Sometimes it also entails franchisor liability, that is, the fact of being held legally responsible for the actions of your franchisees.

 

Why is Franchisor Liability Even Possible?

 

You may be a bit confused about why a franchisor would be held liable when franchises are essentially independently owned and operated. The answer to that question is that, more often than not, franchisors exercise so much control over how their franchisees run their franchises that they could be said to be involved in the daily operations of the franchises. Thus, if a franchisee’s employee is implicated in sexual harassment, and if the franchisor can be shown, through his or her actions or documents, to have been involved in decisions involving the daily operation of the franchise, then franchisor liability could come into play.

This may seem unfair. After all, the franchisor may not have played a part in employing the individual who subjected his or her subordinates to sexual harassment. Furthermore, the franchisor may not even have been aware that this problem existed. This makes it apparent that being a franchisor carries its fair share of potential headaches. If you want to avoid being put in this precarious situation, then you need to seriously think about how you plan on structuring your relationships with your franchisees. You may want to protect your trademark and the reputation associated with it by giving your franchisees meticulous details to govern the way they run their franchises. However, the more detailed and prescriptive your guidelines are, the more deeply involved you are in the operation of the individual franchises. This is precisely the sort of thing that will result in franchisor liability.

Also, if you are directly involved in training your franchisees’ employees, you may be setting yourself up to be held liable for any illegal activity carried out on the premises of their franchises. It seems evident that minimizing your liability by taking a step back from deep involvement in your franchisees’ operations is your best option. You could make it clear (in writing) that the franchise guidelines you give them are simply suggestions. You should certainly restructure the language in all your documents to make sure that the individual franchises are not being identified with the franchise company. There should be clear distinctions between them because documents that conflate them could easily result in franchisor liability for franchisee actions.

Franchising Rewards

As you consider getting involved in franchising, you should consider what you stand to gain by becoming a franchisor. Franchising rewards have to outweigh the risks of franchising if you are to benefit from the experience.

 

Franchising Rewards and their Implications

 

So what are some of the rewards of franchising? To answer this question, it makes sense to think about what franchising entails in practical terms. Franchising essentially allows you to grow your business without bearing all the financial and logistical burdens on your own shoulders. In a sense, it is a division of labor and, in some ways, a distribution of risk. Because franchisees have a stake in the success of the franchise company, they are likely to invest more goodwill and energy than, say, an employee who is hired to manage a branch of a business. Thus, if the franchisor sells franchises to the right people, he or she will not need to stand over them and monitor them to make sure they’re doing things the right way.

A number of franchising rewards follow from the circumstances described above. One of them is the fact that franchising makes it possible for franchisors to slim down their operations for greater efficiency. It would be logistically and financially overwhelming for franchisors to own, develop and run different branches of their businesses in different cities from one central location. Franchising allows the decentralization of control and expenses. Hence, instead of all the operational decisions being made at the center, franchisees have the power to make important decisions while following a franchise blueprint. This sort of organizational structure can be tremendously efficient if the franchise blueprint is well thought out and if the franchisees are a good fit for the franchise company.

Other examples of franchising rewards are made apparent by the competitive capacity of franchise companies. As the previous paragraphs point out, franchising allows for the quick growth of a business. By buying franchising rights, franchisees invest their own resources into the business, making it possible for more stores to be opened and for the franchise company to grow a larger customer base. A franchise company with units in 50 different cities has greater competitive capacity than does a family-owned company with ten branches. The former is likely to fare better against competing businesses.

Other franchising rewards include the availability of more resources to devote to marketing research, the ability to save money by buying raw ingredients or goods in bulk and having them distributed to different units, and increased efficiency in staff recruitment and turnover.

Franchise Trademark

A franchise trademark is a word, name, image, symbol, device or combination that is intimately associated with a franchise. It is a brand name and should be registered to ensure that it is protected by the law. A franchise trademark is tremendously important because it is often the first indicator of a franchise’s identity. It distinguishes one franchise company from another and is used to show that certain goods or services come from a particular seller or provider.

To the average consumer, it comes to represent everything that a given franchise stands for. A good franchise company’s trademark often provokes a sense of comfort in a customer while a bad franchise company’s trademark is often enough to make customers walk away. Thus, it is important for franchise companies to guard the reputations associated with their trademarks by making sure that all their associated franchise units offer their customers top notch products or services.

It is also important for a franchise company to make sure that other business entities are not using its franchise trademark. Trademark ‘theft’ of this kind can easily dilute a brand name. Additionally, it can eat into a franchise company’s customer base by ‘stealing’ away customers and leading them to believe they are being served by an authentic franchise unit. It should not come as a surprise that various franchise companies have gone to court to sue others for the use of their trademarks.

 

What Makes a Good Franchise Trademark?

 

Because trademarks are so closely associated with the companies they represent, care should be taken in their design. A good trademark often ends up defining a company for life. So a franchise trademark should be able to tell customers what the business is about all within moments of the first glance. As franchising involves expanding an established business to reach new markets, excellent marketing and promotion are necessary to introduce the franchise to new customers and to ensure that they remember its trademark. In this case, a distinct trademark that is easy for customers to remember is ideal.

Most franchisors have the intention of leaving behind a business legacy that will last decades or longer. Thus, it makes sense for their trademarks to be durable. In other words, they should be as effective fifty years from today as they are at the present moment. Franchise companies that have to rebrand every 10 or so years lose something in the process. Companies that have the same logo 100 years on tend to be more appealing to customers. Their longevity earns their customers’ trust.

Franchise Termination

As you consider franchising your business, franchise termination is probably the last thing you want to consider having to do. However, you would be remiss to ignore this very important aspect of franchising.

Franchise termination is to franchising as divorce is to marriage. Just as a young couple blissfully in love might think it inconceivable that their union can end in divorce, franchisors might resist considering the possibility that their agreements with their franchisees could someday go sour. In both cases, hope and optimism are forefront on the minds of the parties involved. However, it quickly becomes evident that hope and optimism do not guarantee the success of any marriage or franchise relationship. Even in the best of cases, things can go wrong, and when they go wrong, it is important for there to be a well thought-out plan to follow. This is why it is important to address the possibility of franchise termination in the reams of documents that you put together for your franchisees to sign.

 

Franchise Termination’s Place in Your Documents

 

Devoting time to franchise termination in the documents that define and govern your franchise relationships is important because it lays out a set of guidelines that you can follow when it becomes impossible to sustain a franchise relationship. Considering that franchising often involves taking on large numbers of franchisees, it is reasonable to assume that this is going to happen with at least one of your franchisees.

The reasons that would inspire a franchisee to withdraw from a franchise agreement vary. Likewise, the reasons that would inspire a franchisor to terminate the agreement also vary. Because it is expensive to set up and to maintain a franchise in the first place, the reasons given for termination would have to be good. Backing out of a franchise relationship for frivolous reasons would simply cost the franchisor and franchisee too much.

Ideally, the franchise agreement or franchise disclosure document should detail the circumstances under which termination is justified, the steps that can be taken to remedy the problems, and, if they should fail, the steps involved in the termination process. The terms surrounding termination may put the franchisees at a considerable disadvantage, and, unfortunately, you may be tempted to use this to your advantage. However, you should be careful about this. It is relatively easy to cross the line into the realm of franchise fraud if you handle terminations in an irregular manner. So it is in your best interests to ensure that you clearly lay out all the franchising terms devoted to termination to your franchisees before they sign on. Subsequently, you should follow these terms to the letter if you end up having to terminate the franchise relationship.

Franchise Success

Franchise success means different things to a franchisor than it does to a franchisee. However, it is safe to say that, in any given franchise system, franchisees must be thriving and successful in order for franchisors to experience long-term franchise success.

The explanation for this is simple: franchisors get ‘paid’ when their franchisees are able to afford the various fees associated with running their franchises. The franchise fee is a one-time fee associated with the signing of the franchise agreement. So, in the long-term, it is not as huge a consideration as the other recurring fees. Royalty fees, which recur for the length of the franchise relationship, provide a constant stream of income to the franchisor. In order for the franchisor to get paid, the franchisees have to be able to afford these fees. In order for the franchisees to afford these fees, their franchises have to be doing extremely well in terms of sales. In order for the franchisees to have good sales figures, the franchise system must be set up just right, and the franchisees must have the traits and practices that are conducive to franchise success. Clearly, then, many factors go into running a successful franchise company.

 

Aligning Yourself towards Franchise Success

 

As a franchisor, you cannot afford to simply charge your franchisees unjustifiably high fees. These may grant you high revenues in the short term, but they will sour your relationships with your franchisees in the long term. If they feel exploited, and if they are not getting as much from their franchises as they are putting into them, it is only a matter of time before they exit the franchise system. This is not good for you. Stability and continuity are the hallmarks of any successful business endeavor, including franchising efforts. So you want to be sure that you not only recruit from the best possible pool of franchisees, but that you also do your utmost to maintain strong, respectful, mutually beneficial relationships with them.

Maintaining good relationships with your franchisees begins even before you recruit them and have them sign the franchise agreement. It begins when you are first assessing your business to determine its suitability for the franchising model. The research you do on your business, the consequent decision to turn it into a franchise company, and the processes you undertake to transform it into one must all be done with the franchisor-franchisee relationship in mind. From the get-go, you must be aware of the features that will attract good franchisees to your franchise company and keep them there. At the same time, you must balance them with your own need to make a profit as a franchisor. After all, you are running a business, not a charity. Franchise success must be an achievable goal for you and for your franchisees.

Understanding the Franchise Relationship

A mutually beneficial franchise relationship in which the franchisor’s and franchisees’ roles are clearly defined is the basis for a functional franchise system. Franchisors who do not invest much effort into determining the parameters for this relationship and making it work will be filled with regrets later. The most important thing to remember about your franchise relationship is that it is a business relationship. It is not a friendship between equals. The reason why you and your franchisees have contracts detailing your respective responsibilities within the franchise system is to ensure that you all live up to those responsibilities. This makes for the effective operation of your franchise system.

 

The Hierarchies in the Franchise Relationship

 

Because the franchise system is built on your original business ideas, and because, in the process of franchising your business, your role shifts into an executive one, it is important for your relationship with your franchisees to reflect this hierarchy. It is your role to set the direction for the franchise company’s development. By the time your franchisees sign on for their positions, the terms are set in stone for the most part. They may suggest minor adjustments, but you are not under any obligation to keep on negotiating the details of the contract until they feel pleased with them. Most of the accommodation has to come from their side. If they sign the franchise agreement, they have to be willing to live with the terms of that agreement. This underlines the importance of the franchisor and franchisee hashing out the details of the documents governing the franchise relationship before they sign them. That’s the only way to determine that they are, in fact, a good fit for each other.

A good franchisor will clearly lay out his or her expectations and give the franchisees detailed guidelines to follow as they operate their franchises. At the same time, the franchisor or his or her representative should be accessible to the franchisees. They should be able to express their concerns if they have any. Furthermore, if their concerns turn out to be legitimate, it is important to address them. Ignoring one’s franchisees’ reasonable requests is out of the question. The franchisees could have ideas that improve the efficiency of the system, and any improvements to the system benefit everybody, including the franchisor, at the end of the day. Additionally, it is important for all the parties in a franchise relationship to feel that their contributions matter and that their opinions are valued.

Franchise Fee

Strictly speaking, a franchise fee is the money that a franchisee pays to a franchisor in order to join a franchise system and to gain the rights to operate a franchise at the beginning of their franchise relationship. It tends to be paid at the signing of the franchise agreement. Because it is a flat fee and allows entrance into the franchise system, it is typically a large amount. The fee may grant franchisees an operating manual, franchise advice from the franchisor, and initial training. However, the specifics vary from franchise system to franchise system. To determine what you should grant your franchisees in exchange for the franchise fee, you need to pay attention to standard franchising practice in your industry. Additionally, you should look at the specifics of your business to see what would work best for you.

 

The Franchise Fee, Other Fees and Their Importance to the Franchisor

 

When some people speak of a franchise fee, they usually mean it as a generic term. Rather than a one-time fee, they have in mind all the fees that franchisees pay to their franchisors through the course of their franchising relationships. These fees include the initial fee paid at the signing of the franchise agreement, as described above. They also include the royalty fees, which are paid on a regular basis (perhaps monthly, quarterly or annually) for as long as there is a franchise relationship. This royalty fee can be thought of as paying for exactly what is implied: the use of the copyrighted concepts or materials associated with the franchise company in the process of conducting the franchise. It is directly proportional to the amount made by the franchisee in sales. This is because royalty fees are calculated as a percentage of the sales. The more money the franchisee makes, the higher the royalty fees he or she pays to the franchisor.

As a franchisor, fees of this form will constitute your income from the franchise system. Hence it is important for you to set your franchise fee and other fees at a level that is commensurate with the opportunities and rights you are granting your franchisees. If you set your franchise fee too low, you may end up regretting this decision. At the beginning of the franchising process, the number of franchisees you will get is still not definite. Furthermore, you do not know for a fact what profits your franchisees will be bringing in. Setting your fee too low to attract potential franchisees could add up to the loss of hundreds of thousands of dollars in potential revenue if you succeed tremendously.

Should Your Business Be a Franchise Business?

How do you go about determining whether your business has a future as a franchise business? This is the ultimate question that you have to consider as a potential franchisor. You may have a successful business and may see franchising as a sure route to success, but it is possible for franchising to be the wrong route for your business. Like other major business decisions, this is something that you will have to do research on and to think about long and hard.

 

Determining Your Business’s Suitability to be a Franchise Business

 

One of the first issues you need to consider is the type of business you would like yours to grow into. If you want to expand your business by a few regional branches or offices, then franchising is not likely to be the way for you. Franchising involves so much legal red tape and expense that you do not want to venture in that direction for a relatively small expansion. If, on the other hand, your long-term plan is to expand nationwide and to do so dramatically, then you are probably right to consider turning it into a franchise business. Franchising is ideal for large-scale, accelerated growths of this kind because they are more financially manageable this way. Rather than having to shoulder all the associated financial burdens, you can rely on your franchisees to share the load. Furthermore, because they are investing their own capital into the process, your franchisees are bound to be more invested in making things work than would an employee you hired to run a branch of your business.

Something else you have to think about is whether your business will work well as a franchise business. Not every business can work under this model. Some businesses work best as mom-and-pop stores. They owe much of their success to the unique styles and personalities of their operators and to other contextual factors. If someone tries to replicate these businesses at other locations, he or she will quickly realize that they do not translate successfully in the new contexts. A business of this kind does not make a good franchise business. For businesses to be franchised successfully, the formulae on which they are based have to be replicable in other contexts with equal or greater success.

In addition to being replicable, your business should sell a distinct, innovative idea that makes it stand out in the market in order to survive post-franchising. It is not enough to simply copy another franchise business’s ideas and hope for success. You will be competing with that business, and the only way to do so effectively is to offer customers something that your competitor doesn’t.

Franchise Advice

Because starting a franchise can be like entering into uncharted waters, it is an endeavor that one shouldn’t go into without preparation. The potential franchisor should seek franchise advice before committing his or her time, effort and money to the endeavor. Afterwards, if he or she decides to go ahead with the process and become a bona fide franchisor, it will be important to continue seeking franchise advice. In business, as in all other important endeavors, it is better to be excessively cautious than it is to walk into complex financial situations unprepared.

Franchise advice can take numerous forms. It could be informal advice gathered from talking to franchisors of businesses similar to your own. It could also be gathered from conversations with franchisees. Talking to both franchisors and franchisees about their franchising experiences can help give you a three-dimensional picture of the franchising process and of its pros and cons. The conversations can help you to anticipate the types of problems and misunderstandings that could easily bog you down once you become a franchisor. They can also give you insight into what is realistic, given the current state of the market. It is always better to know what a particular endeavor entails on the ‘grassroots level’ than it is to imagine what it is about in abstract terms. This kind of information can help a potential franchisor figure out how to sweeten the deal so that quality franchisees feel motivated to buy franchise rights from him or her.

 

Getting Franchise Advice from Experts

 

Franchise advice can also come from professionals who specialize in franchising. They may be lawyers, accountants, franchising consultants or others. Because they have prior experience facilitating franchising, they make good sources of knowledge about the process. Of course this knowledge comes at a price, so before signing on a specialist to advice him or her, a franchisor should do some research to determine how good the specialist is. It is important to request list of references and to ask questions about the specialist’s history working with franchisors.

Franchising specialists will likely give a franchisor a checklist of steps to follow in determining whether his or her business is suitable for franchising. Subsequently, they will give the franchisor advice on getting the franchising process started. The franchisor will comply with these different stages of advice by assessing his or her business for reliability, financial security, flexibility, return on investment, and other factors. Additionally, the franchisor will look into the heaps of paperwork involved in the process of franchising and the structural changes that lie ahead.

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