Guide to Selling Franchises 101: Evaluating Your Franchise Assets, Marketing Your Opportunity, Managing the Lead and Setting Growth Goals

In today’s business world, franchising is one of the most common ways to successfully grow a company from a small local establishment to a beloved nationwide chain. A business owner can start a franchise by filing a Franchise Disclosure Document, which allows the company to sell the concept to qualified entrepreneurs who replicate the established business model and follow the guidelines in exchange for the payment of fees and royalties to the franchisor. Now, as interest in franchising grows among professionals who are tired of the uncertainty of corporate America or who have reevaluated their goals following COVID-19, the opportunity for building a franchise network is as strong as ever. But prospective franchisors who are thinking about franchising their business may be wondering: how do I start to sell franchises? 

“Don’t think of this as ‘selling a franchise’— look at it as awarding a partner,” said Nick Powills, CEO of Mainland*, 1851 Franchise’s publisher. “You will be in business with this person for a long time, so it’s much different than selling someone a one-off widget. And, if you award right, the deal value can be tremendous — not only in royalty but also in ROI at the point you sell your business.”

Here are some of the basics that franchisors should understand before starting to award franchises.

Evaluating Your Franchise Assets

The first step to creating a franchise is creating a business model with strong and consistent sales. Above anything else, franchisees want to see a concept that is continuously making money over a period of several years. 

“There needs to be proof of replication,” said Brent Dowling, founder of franchise sales consultancy Raintree*. “Just because one store in one area has been successful doesn’t mean it will translate to success in other markets. Most franchisors aspire to be national concepts these days, so you need to see some evidence of replication.”

From there, Dowling says franchisors also need to take a hard look at the industry and the segment itself. “Is there evidence here of an upward trend? Is there reason to believe that the industry will continue to grow? If we are seeing economic decline, that is a cause for concern,” he said.

Another important asset to evaluate is the franchisor’s capitalization. “Assuming you have a proven business model and there is demand in the segment, then you need to look a little more inward,” said Dowling. “There are other ways to do it, but generally, you want one to two million dollars in order to fund a franchise, including development costs, legal costs, infrastructure support costs, etc.”

Once a concept is ready to franchise, the next step is to create a business plan that outlines the number of franchises a company wants to sell, which markets they are targeting for growth, how fast they want to expand and more. Prospective franchisors must also evaluate the staffing and financial capital required to successfully sell those licenses and onboard incoming franchisees. According to the Annual Franchise Development Report published by Franchise Update Media, 2022 planned recruitment budgets came in at the highest level ever in the report’s history, averaging $261,543 with a median of $200,000.

“You need to have a very careful plan and strategy in terms of how you will reinvest franchise fees in order to make sure the system and growth are supported,” said Dowling. 

Then, it’s time to create a Franchise Agreement and Franchise Disclosure Document. These documents outline the responsibilities of franchise owners, fees and tax responsibilities, financial performance history, rules pertaining to trademarking and much, much more. From there, emerging franchisors need to hire a good, tenured corporate support team to provide ongoing support and training to all new franchisees.

Marketing Your Opportunity

Regarding franchise development marketing, there are countless tools out there to help get concepts in front of the right eyes, from social media to brokerage groups to direct mailers. How these tools can be best leveraged and combined will be determined by the unique strengths and goals of each individual franchisor, but every franchise brand must understand what resources are available and how to use them.

“A lot of brands look at what we do and see us generating leads through several different channels,” said Dowling. “Emerging franchisors may think they need to get in there and do all those things right away. My message is don’t do that. There is an easier way to go about it initially. Typically, especially with a strong founder in place, you have a network of customers and folks in your business who will make great franchise owners. Those first franchisees will help you build that infrastructure and network for when you start working with brokers and consultants. Put together an organic campaign, guerilla marketing and bring those first franchisees through the door.”

These first franchisees will also come to be the most powerful validatiors for the franchise opportunity moving forward. “Successful franchisees sell franchises,” said Powills. “Franchisees who make money make you money. This is not a difficult concept to understand, yet, many franchisors are pressured to sell versus mindfully awarding. Think through your sales process to make sure you are positioning your franchise for sustainable growth.”

To generate leads, franchisors should consider brokerage groups, digital marketing tools, franchise development websites, social media, pay-per-click ads, franchise portals, as well as tier referral systems where franchisees can refer other franchisees to the brand.

Managing the Lead

Bringing in the lead in only half the battle, said Dowling. Once the funnel is full of qualified prospects, franchisors need to be diligent about nurturing that lead into becoming a sale. 

“In this day and age, the proper way to manage a lead is through automation,” said Dowling. “If you are a young brand, you are going to be wearing many hats — opening the first few franchises, building support. But you need to get back to leads in a timely way. Being responsive is probably the most important thing when you are managing leads. By automating emails, texts, and LinkedIn invitations, you can make sure you are following up regularly and giving prospects the information they need about the brand so they can start to learn who you are.” 

Whether through an email drip campaign or phone calls, franchisors need to keep leads warm and renegade them by presenting them with valuable information. “Franchisees buy because they believe in your product, your vision, your franchisees, your investment and your growth plan,” said Powills. “If you are not making them comfortable in all parts — both from an online research standpoint and after they enter your funnel as a lead — fix it. That will help you in your development mission.”

If franchisors are using a CRM that allows them to know when a prospect is on their site, for example, they can use it to their advantage by reaching out to the candidate and getting them engaged. Franchisors should also build content that’s relatable to the candidate, like a story about a franchisee with a similar background or a location that’s opening in their area.

Setting Goals

A common mistake made in franchising is setting unrealistic goals. Everyone wants to sign as many deals as possible in a given month, quarter or year, but it’s important to follow the common business rule of thumb: underpromise and overdeliver. 

“The first step is really understanding your historic, trailing year performance and building realistic goals from there,” said Dowling. “So many brands come and say: I want 30 deals this year, but I only did five last year. Without some really compelling and unique reasons for that 600% increase, you can’t expect that. You need to have a realistic expectation of what you are going to do in terms of budget, model and performance. Even if you don’t have those 12 months of results to look at, you need to at least understand industry averages for what it costs to generate deals and leads.” 

By working off that information, Dowling says franchisors can build measurable actions and set goals accordingly. “We’ve seen brands increase YOY franchise sales by 200%, and that is because we took the time to nail the Item 19, for example, or we improved on the validation and culture,” he said. “You can always account for the increase, and there are a number of ways to go about it.” 

As a franchisor, it can be tempting to sign any properly-capitalized franchise partner that inquires. However, in the long run, this is a short-sighted and misguided approach. Many franchisors have made this common mistake, and it’s difficult to turn down that much-needed franchise fee. After a franchisor has spent months or years refining its brand, that hard work can be immediately erased by bringing on the wrong franchisee, potentially leading to poor performance, and worse, poor validation. That is why franchisors must do their due diligence and develop an in-depth understanding of their ideal franchisee profile. 

For example, Powills says qualifying candidates for multi-unit ownership can be wise in the long run. “If you qualify candidates to be financially sound for multi-unit ownership, then your system will have fewer franchise owners who own more franchised units,” he said. “This will be easier to manage and can present great value down the line. Also, if your franchisees are growing within your system, that shows prospective buyers that there is a secret in the business – and that in fact the advertised potential is being met.”

The Bottom Line

Overall, Powills says the key to dominating franchise sales is ensuring that the franchise opportunity delivers on its promise and creates a healthy, growing system full of individual franchisees who are satisfied with their decision to join the team.

“Selling and awarding a franchise could be the toughest thing in the world to sell,” said Powills. “You are convincing someone to invest their life’s savings into a brand and business they have little control over. That’s a big deal. Make sure you are facilitating the process with comfort. Show them that you will really support them once you are in business together.”