Issuu

How To Franchise Your Business

Agenda 01. The Decision to Franchise • • • •

How Franchising Works Alternatives Quality Control Legal Aspects of Franchising

Creating a Successful 04. Franchise Strategy • • •

Structural Decisions Financial Organizational Development

05. Questions and Discussion We are going to try to cover a great deal of information, so we are asking that you hold your questions until the end of the session unless they are on a particular slide.

About iFranchise Group More hands-on experience than any other firm • • •

Consultants with over 900 years of franchise experience 98 out of the top 200 franchise companies Offices in Chicago, Dallas, Atlanta, Miami, and Dubai

Numerous Awards and Publications

More “senior level” experience • •

Hands-on experience at start-up and established franchisors Former CEOs, CFOs, EVPs of more than 50 different franchise companies 

Adecco, Armstrong Tile, Auntie Anne’s, Capriotti’s, Dunkin’, LINE-X, McAlister’s Deli, Pearle Vision, McDonald’s, PIP Printing, RE/MAX, Snap-on Tools, and other national brands

The ability to bring more resources •

Hands-on experience at start-up and established franchisors

Breadth across four functional areas • • • •

Strategic planning Quality control Marketing Organizational development

Six years in a row, voted the #1 Franchise Consulting Firm in North America in an independent survey of over 1,100 franchisors

About TopFire Media A Premier fully-integrated public relations and digital media agency specializing in franchised businesses • • • • • •

Public Relations Search Engine Marketing Content Marketing Social Media Publishing Pay-Per-Click Advertising Website Design & Development

Proprietary AI driven ”Look-Alike” model that drives leads at less than half the national average CPL Team with Hands-On Franchise Experience • • •

Real world experience with nearly two dozen brands Efforts have resulted in tens of thousands of franchise leads And many hundreds of franchise sales

Recent honors and awards: • • • • • •

Top supplier from Entrepreneur five years in a row Best New Agency (Ragan & PR Daily Ace Awards) PR Agency Elite – Mission: Fit to Own (PR News) Best Website Finalist (PR News) Best Media Relations Campaign Finalist (PR News) Best SEO Finalist (PR News)

About FranDevCo A premier franchise development and sales organization Helps emerging brands realize their full potential Placed over 1,100 units with more than 600 franchises Beyond sales, serves as an outsourced development partner with a consultative process Support brands across diverse sectors • • • • • • • • •

Residential and Commercial Services Automotive Quick-service Restaurants Fitness Health and Wellness Beauty Pet Youth Enrichment And more

Recent honors and awards: • •

Top Supplier Award from Entrepreneur Employee Satisfaction Award from Franchise Business Review

About the Speaker 40+ years of experience in franchising and franchise consulting Has consulted with 30+ Fortune 2000 companies Author of the bestselling book, “Franchise Your Business: The Guide to Employing the Greatest Growth Strategy Ever” Twice named to “20 To Watch” in franchising Provided franchise consulting services in 36 countries around the world and has provided headliner speeches in over a dozen different countries. Frequent speaker at franchise industry events, and has written or collaborated on multiple papers, articles, and interviews within the franchise media Author of the books, “The Franchisee Handbook: Everything You Need to Know About Buying a Franchise” and “The Multiplier Model”

Mark Siebert – CEO iFranchise Group 6

Who is here today? Thinking about franchising a business?

Franchising less than one year?

Franchising more than one year?

We are happy to send you a copy of this presentation, so you can limit your note taking if you so desire.

Franchising in the United States

What Is Franchising? • FTC rule 436 cites three elements that legally define a franchise:  The use of a common trademark  The exercise of control or provision of assistance  The collection of fees, royalties, mark-ups or

other monies from the franchisees • If you have all three elements, you are a franchise, regardless of what you call it • Some state definitions vary, but are similar • Do not have to use the “f-word”

How Franchising Works Franchisee typically pays • Franchise fee average about $25,000 to $35,000 • Royalty range between 4% and10% • Advertising fees range between 1% and 2% • Franchisor will often sell product to the franchisee

Franchisor typically provides • Trademark and branding • Initial training • Operations manual and systems • Ongoing supervision and support • Other support services

1 0

Diversity of Franchising Restaurants Only 25%

Direct Sales Organizations

Retailers

B-to-B Service

B-to-C Service

• Consulting

• Law firms

• Advertising

• Medical practices and Spas

• Placement firms • Internet related

• Hotels • Home Services • Senior Care

Is Franchising Right for My Business?

Franchise vs. Company-Owned Pros • Leverage Capital • Speed of Growth • Motivated Management • Reduced Risk

• Must “share profits”  Franchise unit will usually generate less

profit than a profitable unit  But far more profit than an unprofitable

company-owned operation

• Few operational concerns

• Less Control

• Higher quality

• Good relations with franchisees take work

• Organizational leverage

Cons

• MYTH: Litigation

The Litigation Myth • Survey by independent industry source indicated that only 27% of franchisors had any litigation  This includes large companies like McDonald’s and others who are targeted for frivolous lawsuits and lawsuits unrelated to franchising  McDonald’s, with 30,000+ contracts had (2008) only six pending lawsuits. Big Target. Litigation rate of 0.02%

In that example, most were unrelated to franchising: • A group claiming that the way they make chicken is unhealthy • Group suing them for making their children obese • Group suing them for beef tallow in cooking oil • A Group suing them for collection of tax on bottled water • One suit by a JV partner • One pending franchisee lawsuit from a franchisee who owes $3 million in unpaid royalties © 2025 iFranchise Group. All Rights Reserved.

The Litigation Trade Off: Franchising vs. Company-Owned Growth Liability Type

Well-Executed Franchising

Franchise Contract Liability

Company-Owned Growth

Employment Liability

Property Lease Liability

Equipment Lease Liability

Workers Comp Liability

Slip and Fall Liability

Vicarious Liability

Usually not*

You always have liability for your agents

Can require third party to insure you against liability

Yes – franchisee

Can insure against internally

Yes

* Not responsible for acts of an independent contractor (franchisee) relative to third parties. Exceptions are when a) you create an agency, and/or b) if you are negligent. © 2024 iFranchise Group. All Rights Reserved.

Analyzing the Company Growth Option What are your goals? BE SPECIFIC!

What is your risk tolerance?

• •

Certain levels of profits Sell company for a specific amount

How much are you willing to invest and re-invest? What other resources do you have to bring to bear?

Conduct Cash Flow Analysis to See if You Can Reach Your Goals •

Goal = Sell company for $10 million at the end of five years

•

Two units in operation

•

Total Equity Investment in New Operation = $150,000

•

Total available capital = $200,000

•

Existing Free Cash Flow for Reinvestment = $100,000/year

•

Units Break Even in First Year

•

After that, Free Cash Flow from New Units = $50,000/year/each

Analyzing the Company-Owned Alternative Year 1

Year 2

Year 3

Year 4

Year 5

Starting Capital

$250,000

$200,000

$250,000

$300,000

# Opened

Capital invested

($150,000)

($300,000)

New Cash Flow

$50,000

$100,000

$150,000

$200,000

Existing Cash Flow

$100,000

Units – EOY

Cash Flow

$100,000

$150,000

$200,000

$250,000

$350,000

Value @ 7x CF

$700,000

$1,050,000

$1,400,000

$1,750,000

$2,450,000

$450,000 in free cash flow by Year Six = $3,150,000 valuation ONLY IF NO INCREMENTAL OVERHEAD IS NEEDED TO SUPPORT 17

Raising Equity as an Alternative 



This Example •

Would need to open 27 company units

•

That would take about 12 years of reinvesting everything

•

Total Investment = $4 million over that time frame

Cannot get there from here If you are raising equity, factor in dilution

Alternatives: •

Change Goal

•

Change Time Frame

•

Change Assumptions (structure, capital devoted, leverage, etc.)

•

Raise equity to grow faster

•

If you will give up 50% of the company, you need to grow twice as big

•

Run the numbers again

Analyzing the Equity Alternative Year 1

Year 2

Year 3

Year 4

Year 5

Starting Capital

$3,250,000

$1,100,000

$850,000

$1,250,000

$1,500,000

# Opened

Capital invested

($2,250,000)

($1,050,000)

($750,000)

($1,200,000)

($1,500,000)

New Cash Flow

$750,000

$1,100,000

$1,350,000

$1,750,000

Existing Cash Flow

$100,000

Units – EOY

Cash Flow

$100,000

$850,000

$1,200,000

$1,450,000

$1,850,000

$2,750,000 in free cash flow by Year Six = $19,250,000 valuation. Divide by two to account for 50% ownership = $9.6 million selling price. AGAIN, ONLY IF NO INCREMENTAL OVERHEAD IS NEEDED TO SUPPORT 19

Equity Raise Considerations With an influx of a little over $3 million •

Can jump-start growth and leverage off of that growth

•

Will need to get to about 50 – 54 units

•

Total investment $7.5 - $8 million

•

But you are using investor money

Problem: Realistic valuations •

Valuing the existing business – (4X – 7X EBITDA)

•

Year One Business Value = $700,000

•

Business Value after Equity = $3.7 million

•

Sophisticated investor would want 81% ($3M/$3.7M)

•

Would need to find an investor who would invest $3M for 50%

•

Might try numbers again at $5 million and a 20% stake???

•

Limited in today’s marketplace

•

At some point, just not realistic

•

Control an issue

Capital availability even with realistic valuations

Alternatives to Franchising Name Fee

Name

= Franchise

Fee

System

Name

Business Opportunity or License

Fee System

Trademark = License

Distributor Dealership Agency Sales Rep Joint Venture 21

Can Combine Options Too Name Fee System

Name

Franchise + Joint Venture

Product

Trademark License + Distributor/Dealer

System

Equity

Advantages & Disadvantages of Alternatives Name Fee

Advantages

= Trademark License

• Less Regulation  Still a Franchise in NY

Disadvantages • Lower fees • Do you have strong name? • No control over brand

Often, this alternative is eliminated because the company does not have adequate brand strength, and, even if they did, they would risk losing their trademark if they did not exercise control. Moreover, it is important to note that the “control” element of the franchise definition is very easy to trigger.

Advantages & Disadvantages of Alternatives Business = Opportunity System or License Fee

Advantages • Less Regulation  More at the state level

Disadvantages • Lower fees • Do you have strong name? • No control • Create competition • Poor image

This can be a viable option for some, but the loss of the branding element is an issue that should be carefully considered. For example, what would happen to your licensed channel if a branded channel were to be introduced by your competitors? Will you have national accounts? Or a desire to create consumer brand loyalty?

Advantages & Disadvantages of Alternatives Advantages Name System

Dealership or Distributorship

Disadvantages

• Less Regulation

• ABSOLUTELY NO FEES

• Easier to sell

• Support provided “free” • Must have product to sell • No revenues from service • Products = “stepchild” • Dealer defections to:  Better/hotter products  Cheaper alternatives  Better margins

Dedicated dealerships can have many of the same advantages as franchising. The biggest disadvantages are the need to pay for services out of the wholesale margins. CAUTION: Can create an inadvertent franchise after the fact, as happened with Mitsubishi v. To-Am.

Advantages & Disadvantages of Alternatives Advantages Name System

Agency or Sales Rep

Disadvantages

• Less Regulation

• ABSOLUTELY NO FEES

• Easier to sell

• Support for “free” • Need product /service • Turnover is high • Increased training costs

A “top-down” flow of revenues will avoid franchise laws. Again, be aware of the creation of an inadvertent franchise.

Some Other Options Technology-based Shared Services • Use an app to drive business • Avoid franchising by top-down fee structure • Uber, Lyft, Airbnb

Certification Programs • Certification Mark, not a Trademark 

TM/SM = Source of Product or Service



CM = Characteristics of a Product or Service

• Cannot be used as a TM by the owner of the mark • Must be willing to offer to all who qualify • Cannot have exclusive territories • Can easily stray into a franchise relationship

Laws Governing Third-Party Relationships

Franchise

Franchise Laws

Business Opp. Laws

Relationship Laws



Fair Dealership Laws

Sales Rep. Laws

Securities Laws

TM License Business Opportunity



Dealer / Distributor



NY Franchise Law



Federal & 26 States



New York Only



26 States State / Industry Specific



35 States



State and Federal

Choosing the Right Growth “Vehicle” The decision should be goal-driven

A Volvo or a Rocket Ship?

• Distance • Speed • Obstacles

You don’t have to choose only one vehicle!

• Risk tolerance

Don’t decide to franchise! Instead, decide: • Do I need a third-party distribution channel?

The law (or your lawyer) should never dictate your good business decisions

• Do I want that channel to be branded? • If it is branded, do I want to control quality? • How do I want to be paid?

2 9

Is Your Business Franchisable?

Franchisability Proven prototype Credibility Differentiation “Sizzle”

Sell?

Affordability Profitability

Buyer appeal

R.O.I.?

Value Proposition Market trends Capital Teachability Adaptability

Succeed?

Management

Clone?

Systemization

R.O.I. “Hurdle Rates” The franchisee should make a return on the time they invest • •

No different than if they were to go out and get a job Salary should be “market rate”

The franchisee should make a return on their investment • • •

No different than if they invested in a stock Return should be commensurate with what they would make if they were to make an investment of similar risk Ability to sell back their investment at the end of the term

Franchisees expect that they will need to build their business • • •

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

Annual Cash-on-Cash R.O.I. at the unit level – our criteria • •

15% for Owner Operators 20% for Area Developers (who will support additional overhead)

Determining R.O.I. – Simplified Analysis

Cost to Open a New Unit

150,000

Add a Franchise Fee

25,000

Add Working Capital

25,000

Franchisee Estimated Investment

200,000

Estimated Franchisee Revenue Year Three

500,000

Current Profit after Owner’s Compensation

70,000

Adjust Owner’s Compensation

15,000

One-Time Only / Capital Investment

5,000

Tax Minimization Strategies

5,000

Shared Overhead

5,000

Interest and Debt Service

5,000

Depreciation and Amortization

5,000

Subtract Royalties, Fees, & Price Adjustments

30,000)

Estimated Franchisee Profit (adjusted)

80,000

Divided Estimated Profit by Estimated Investment

$80,000/$200,000

Estimated Franchisee Return

40% 33

When to Franchise

Shouldn’t You Perfect Your Business First? Perfecting the Business • If you have perfected your business, SELL IT!

Quick vs. Slick

• If you are standing still, someone is gaining

• If you are going head-to-head with more established competition and your business model is not highly differentiated – be sure to refine first

• McDonald’s in 1955

• More unique, the sooner you should franchise

•

Risk: Someone with a camera and a notepad

•

First mover advantage

•

Who was the first . . . ?

Risk of Failure

Quick vs. Slick - You Are Not the Only One in the Game

Business Model Risk

Competitive threat

First Mover Advantage – Who Was First?

Founded

Franchised

Units

1932

1990

420+

1953

1961

12,200+

1955

30,000+ 43

How to Succeed as a Franchisor

What Is Needed to Franchise? 01. Business plan/strategic direction 03. Operations manuals

02. Legal documents and registrations 04. Training program

05.

06. Effective marketing plan

Quality control mechanisms and systems

07. Franchise collateral materials

08. Website and web-based marketing

09. Advertise

10. Design and implement a sales strategy

11.

12. Capital

Staff an organization to implement the plan

The Importance of Strategy

4 46 6

Strategic Planning The Key to Success • You are entering a new business. • Goals drive your business. • Start with support and cost structure. • What do you need to do to help your franchisees succeed? • Don’t rely on guesswork: The future of your business is at stake. • Financial analysis is essential. • Reverse engineer your success. © 2024 iFranchise Group. All Rights Reserved.

Goal Driven Modeling Goal

Sell for $10M in 5 Years

Average Selling

6.7 times EBIT

Year Five Earnings

$10M/ 6.7 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

Goal Driven Planning Sales

5 50

Goal Driven Planning Hire Franchise Salespeople

Sales

5 51

Goal Driven Planning Hire Field Reps

Sales

5 52

Goal Driven Planning Hire Support Staff

Sales

5 53

Goal Driven Planning Sales

Personnel Marketing Office Space Brochures 10 Year

Cost to get into franchising can range from $50,000 to $200,000+

5 54

The Flaw in Many Strategies There are certainly a large number of neophyte franchisors who take a “Ready-Fire-Aim” approach • •

Often rely on guesswork Or analysis of what comparable franchisors are offering to make major decisions

“Copying” is not a strategy – it is a recipe for disaster! • • • •

Uniqueness is important to success, whether achieved through the business model, marketing, support, structure, fees, or marketing. Copying assumes that business economics are the same, support is the same, and that a new franchisor will simply differentiate themselves based on great franchise marketing But established franchisors often have many advantages not shared by newer franchisors So, the copycat strategy that is taken by many new franchisors can be responsible for their failure

5 55 55 5

Impact of the Right Royalty as an Example Imagine the impact of a 1% mistake on your royalty • If a single franchisee generates $500,000 in revenue • 1% = $5,000 off the bottom line • But franchisees will never tell you that they are paying too little and often inertia will keep the royalty where it is at for years

Lost revenue from a single franchise Times 100 franchises opened

$5,000 $500,000

Times 20 years

$10,000,000

Lost enterprise value at 10x earnings

$5,000,000

Total Loss

$15,000,000

Other Major Business Decisions Demand Similar Scrutiny Structure • •

Structure dictates support requirements and responsibilities Will (should) impact fees, royalties, targeted franchisee

Targeted franchisee •

Will dictate support requirements as well

Territory – 10% mistake is huge • • • •

Franchisor whose franchisees generate $500,000 sells 10 territories At a 6% royalty, that franchisor is losing $300,000 a year …forever Plus, enterprise value of $3 million lost Total Loss from 10 territories with a 10% error: $9 million+

Other fees and margins on product sales

Cash Flow Modeling for Growth $

Aggressive Growth Fixed Costs = Salary + Advertising Hire Staff in Anticipation of Need and Advertise Aggressively

Loss Must rely on one of the following to fund payroll: 1. Adequate initial capitalization 2. Revenues from existing operations 3. Franchise sales (a worst practice)

Royalty & Gross Margin Revenues

Cash Flow Modeling for Growth Conservative Growth

Only incremental cost is franchise marketing and that can be a variable cost after a start-up allocation The Golden Rule: Grow No Faster Than Your Ability To Support Your Franchisees

Second Hire

Royalty & Gross Margin Revenues Leverage Existing Staff and Minimal Advertising

First Hire

Loss

The Four Pillars of Quality Control

The Quality Control Trade-Off • Many people think franchises have lower level of quality – just the opposite is true • The Quality Trade-Off • More difficult to control • Higher caliber • More highly motivated • Longer term

• Studies show franchisees outperform • Anecdotal evidence

Quality Control The Four Pillars of Quality • Franchisee Selection • Documentation & Training – the Tools • Support • Legal Documents and Compliance

Five Critical Points of Qualification Intelligence Capitalization • Biggest reason for failure • Can cause franchisees to cut corners

Work Ethic Personality • Experience in leading a team • Tendency toward being an entrepreneur • Honesty and ethics • Philosophy and cultural fit • Nature (Confrontational or adaptive) • Compatibility (you are “married” for the next 20 years) © 2024 iFranchise Group. All Rights Reserved.

“Job Specific” requirements 63

Franchisee versus the Entrepreneur Franchisee

Entrepreneur

• Straight A Student

• B or C Student

• Long tenure with job

• Moved from job to job

• Corporate job

• Owned businesses

• Drives family car

• Sports car

• Few tickets

• Lots of tickets

• Married

• Divorced

• Looking for security

• “Never saw a rule he didn’t want to break.”

The Roles of Your Operations Manual • Role as a sales tool

• Role as in reducing liability

• Role as a training tool

• Extension of the legal documents

• Role as a reference tool

Operations Documentation Limiting your liability: 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

Must avoid creating an inadvertent “agency” relationship

Must avoid potential areas of negligence or take great care when prescribing actions

Should cross-reference regulations and not cite them

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, Berkshire Hathaway –

Development of Best Practices Operations Manual 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

Beyond the Operations Manual Faster growth requires formal training programs • •

For your staff For franchisees

Focus on training the trainer (your franchisee) • •

Franchisee will train their staff Should have tools to do so

Video pushes QC to lowest level of organization Online 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

Learning Management Systems

Franchising and the Law

Legal Documents The Federal Rule – FTC 436 Disclosure document with 23 items

Disclosure fourteen days prior to sale

Final Franchise Agreement seven days prior

Financial Performance Representations

Consistency with Franchise Disclosure Document

Legal Documents State Laws State Regulations 14 registration states

Regulate advertising

Business opportunity states

Determining applicability (even definitions vary – NY)

What Events Can Trigger State Laws? Laws vary from state to state • Franchisor’s state of incorporation

Track these variables closely

• Franchisor’s domicile • Franchisee’s residence • Territory covered • Where discussions take place

Check with your attorney when in doubt

State-Specific Legal Issues States having franchise registration or business opportunity laws Must be registered prior to soliciting franchise leads Submission of advertising materials •

CA, MD, MN, NY, ND, RI, SD, WA

Submit all advertising to your attorney in any event

Relationship and state specific laws • • • •

Termination Non-compete Escrow Other

Franchise Legislation Within the US 2025 Legend:

N Y

MI NE

States having no franchise or filing requirements UT

States having franchise registration requirements

IN KY

V A NC

RI CT MD

States where franchisors must file to comply with business opportunity laws

TX FL Alaska

Hawaii

Notes: •

Within Indiana, Michigan and Wisconsin, registration is effective immediately upon the application being filed.

•

Florida, Nebraska, Kentucky, Utah and Texas require a simple exemption filing. Once that is filed, a franchisor can begin to offer franchises.

•

South Carolina provides an exemption if the franchisor has filed a State trademark registration.

•

Connecticut, Maine, South Carolina and North Carolina provide an exemption if the franchisor has obtained a Federal registration of its trademark

•

Six States require registration of advertising prior to use. (CA, MD, MN, NY, ND, WA)

•

New York, Oklahoma and Rhode Island require the FDD be provided to a prospective franchisee at the earlier of (i) the 1st personal meeting held to discuss the franchise or (ii) 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).

•

Michigan and Oregon require the FDD be provided to a prospective franchisee 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).

•

Many states also have State Relationship Laws that impact issues such as franchise termination or non-renewal. Your franchise legal counsel can advise you on relevant issues involving these states.

Financial Performance Representations aka “Earnings Claims” Cannot provide Earnings Claims unless in Item 19

Advantages and disadvantages

• No information on sales

• Must be appropriate

• No information on earnings

• Sell faster?

• Limited information on expenses (costs as a percentage of total costs are ok)

• More or less litigation?

• Start-up costs are included in Item 7 and must be disclosed

Some choose not to do Earnings Claims • For good reasons, bad reasons, or bad information • Selling franchises in the face of no FPR • Some industries more important than others (food vs. direct sales)

Significant Fines & Penalties • Rescission • •

Return fees paid Make good on franchisee’s investment

• Fines – both civil and criminal • •

Up to $11,000 per violation for the FTC Rule State fines of up to $100,000

• Attorney’s fees • Damages • Litigation costs and distraction • Barred from selling franchises • Disclose violations for 10 years • Private rights of action at the state level • Government enforcement • Personal liability • In some states, constitutes Class 4 felony (jail time!)

Marketing Your Franchise

7 79 9

Marketing Planning A Requisite for Rapid Growth

Start locally, then regionally • • • • •

Cluster support More effective franchise advertising Consumer advertising economies Brand building Buying economies

Don’t expand faster than your support capability • Quality control is key • Nothing sells franchises as well as happy and successful franchisees • Three-hour drive time

Marketing Effectiveness Different franchises require us to target different types of franchisees – affecting the media and message used for effective marketing. Identify your prospect as narrowly as possible •

•

Survey Competitors •

Background

•

Hot Buttons

•

Media

Survey Top Franchisees •

Characteristics of top performers

Are we selecting the right lead generation strategies? Is the advertising message appropriate for our targeted franchisee profile? Are we targeting the right prospects and using the right media based on our development strategy? © 2025 iFranchise Group. All Rights Reserved.

The Average Franchise Candidate Name Recognition • •

40% say joining a “known brand” is not vital 40% would prefer a known brand, but are open to newer concepts

70% or more will visit the corporate office…100% should visit yours Only 10% are looking because of job loss in a normal economy •

In today’s world, however, that number may be 30% to 40% depending on the nature of your franchisee

80% will talk to your franchisees…100% should talk to your franchisees

Average Franchisee Recruitment Budget (In Thousands of Dollars) $300 $275

263.4

261.5

$250 $225 198

$200 $175 $150

153

165

175

197

208.6

202.5

201.8 181.5

162

152.8

166.7 162.8

225.2

215.2 186.8

175

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: Franchise Update

Franchisor Marketing Dollars by Media Percentage of Total Expenditures: 2011-2024 60%

50%

40%

30%

20%

10%

Internet/ Digital

Franchise Website

2012

2013

Social Media

2014

2015

Direct Marketing

2016

2017

Trade Show

2018

Public Relations

2019

2020

Source: Franchise Update

In Market Meetings

2021

TV/Radio

2022

2023

Brokers

2024

Other or Don't Know (not including brokers)

Source of Franchise Leads by Media Percentage of Total Leads Received: 2011-2024 70% 60% 50% 40% 30% 20% 10% 0%

Internet/ Your Print Digital Franchise Opportunity Website 2012

2013

Referrals Trade Shows 2014

2015

P.R.

2016

2017

Email Mktg. 2018

Source: Franchise Update

Direct TV/Radio Brokers Unknown Other Mail 2019

2020

2021

2022

2023

2024 85

Breakdown of Expenditures on the Internet/Digital 2016-2023 (2024 data is still pending) 50%

40%

30%

20%

10%

Other Franchise Opportunity Business Media Sites

PPC

SEO

Text Digital Sponsored Email Social Remarketing/ Social Content/ Messages Asset Media Marketing Networking Target Native Trailing Advertising Creative Advertising

2016

2017

2018

2019

2020

2021

Source: Franchise Update

2022

Other

2023

Average Closing Costs (Media Dollars Per Sale Excluding Broker Fees)

$13,757

$14,000

$13,000 $12,138

$11,639

$12,000 $10,500 $9,451

$10,000 $8,200

$8,000

$9,142 $8,571

$8,565

$8,984

$10,086 $9,270

$7,558

$7,000 $6,301

The Franchise Sales Pipeline Public Relations Example CPL = $250

Print Advertising Example CPL = $150

Trade Shows Example CPL = $100

Direct Marketing Example CPL = $75

Internet/ Digital Leads Example CPL =$50 - $150

Brokers Cost Per Sale = $20K - $35K

Referrals/ Unsolicited CPL = $0

Lead Generation Time Varies by Media

Send Marketing Materials, Prequalify, Schedule Meetings

Average CPL: $271** Meet With 3 – 10% of Leads

Initial Meetings with Candidates Further Qualify

Convert >25% of Completed CIRFs to Sales (Franchise Update reported 28% in 2024)

Close 65% - 75% of Discovery Days

(Franchise Update reported an average of 65% in 2024)

Follow-up meetings, assist with business plan & secure financing

Award Franchise

Average 45 – 90 Days Lead to Meeting Time to close can range from 30-90 days or more following the initial face-to-face meeting Total time to close is often 12-20 weeks Marketing Cost = $13,757 Average per sale* Overall Expected Close Rate = 2.3%** Close Rate for Qualified Leads = 10% (those that meet certain pre-qualifiers)

Average cost per sale ranged from about $9,000 to over $12,000 in recent years. While not measured separately in the Franchise Update report, Cost Per Sale numbers can vary for emerging brands, in particular.

** Historically, average close rates have ranged between 1% and 3%. Average Cost per Lead (CPL) was between $150 and $200, and spiked to over $300 in 2020 due to the pandemic. The numbers above are based on the most recent Franchise Update survey. Source: Franchise Update.

Marketing Materials Essential for Speed Franchise marketing is very different from consumer marketing The Five Sales: • • • • •

Go into business for yourself Franchising is the way to go Our industry is best Our company is best Now is the time

Franchise marketing is highly regulated Tools: • • •

Your web page should be your first concern An e-brochure is essential for credibility – different message from web Video and other recent tools

Before You Start Selling

Franchise Sales are Predictable A good concept Stage 1: Generate/Assign

LEADS (1000)

Stage 2: Qualify/Convert

+The Right Message +Marketing Plan

PROSPECTS (100)

+Adequate marketing budget

Stage 3: Customer

CUSTOMERS (10)

+Good sales technique = leads = meetings Older studies indicate the average new franchisor will sell: •

An average of 9, 11, and 13 franchises in their first three years

•

Median sales of 4, 5, and 6 sales in their first three years

= franchise sales

The Franchise Sales Cycle Pre-Sale

Concept & Value Proposition Offer/Structure

Validation

Communication

Marketing Plan

Support Message & Materials Opening Assistance

Post-Sale

Advertising Expenditures Training

Selectivity

Sales Process

Present Value of a Single Franchise •

Important concept to understand when measuring hiring decisions, advertising and marketing related expenditures – Present Value of a Franchise (PVOF)

•

Should use this principle in decision-making

•

PVOF = Net Present Value of franchise fees, royalties, product/equipment sales, advertising fees, and other revenue, less any direct expenses, discounted to today’s dollars

The sale of a single franchisee paying 6% royalties on AUVs of $500,000 can result in $600,000 in revenues, plus advertising, product purchases, increased buying power, etc.

The Sales Process •

Be selective

•

Hire the best you can afford

•

Maintain personal involvement

•

Let brand maintenance and the potential for franchisee success be your guideposts

•

Train your sales staff

•

Measure everything

•

And, most of all, be sure a standard process is in place for handling each prospect

Done Right, It’s A Numbers Game •

If the concept does not work, do not franchise

•

Use franchisee success as your capacitor of growth

•

With those caveats, franchise sales are a natural result of a well executed sales and marketing strategy

•

The number of franchises you sell will not be a result of “averages” but instead a result of marketing expenditures.

Putting the Program Together

Integrated Franchise Development

01.

(Disclosure Documents)

02.

(Operations Manual and Disk)

03.

(Franchise Ads and Brochure)

Strategic Planning Sound strategic planning forms the basis of every iFranchise development project. iFranchise provides primary and secondary market research, a strategic plan documenting the structure of the franchise offering, and sensitivity analyses of projected revenues, profits and cash flow scenarios.

Operations & Training The iFranchise Group produces an operations manual incorporating the initial and ongoing operations of the franchised business. This manual acts as a sales tool for prospective franchisees, as a training guide, as an ongoing reference tool, and as a legally enforceable quality control document.

Franchise Marketing

The iFranchise Group boasts the most experienced marketing team in the industry. Clients receive detailed marketing plans and lead generation materials designed to generate interest from qualified prospects, and compelling brochures, videos and multimedia presentations to convert leads into face-to-face meetings.

04.

(Sales Strategy Plan)

05.

(Implementation Guide)

Franchise Sales Training An effective, legally compliant sales program is critical to the launch and continued growth of any franchise company. Franchise Group provides each development client with a comprehensive sales strategy manual, intensive sales and compliance training, and an extended sales rehearsal regimen designed to optimize your effectiveness.

Implementation Plan & Support iFranchise Group is committed to the long-term success of its clients. To that end, each development client receives a detailed 5-year step-by-step implementation plan that addressing staffing and organizational development, outsourcing, marketing and cash flow needs, and key management issues. iFranchise offers ongoing implementation consulting and programs, and can act as a resource at every stage of your growth.

Franchise Program for Aggressive Growth Approximate Development Activity Schedule MO 1

MO 2

MO 3

MO 4

MO 5

MO 6

MO 7

MO 8

MO 9

MO 10

MO 11

MO 12

Benchmarking Initial Planning Session Strategic Planning & Gap Analysis

Legal Coordination

Financial Sensitivity Analysis Disclosure Document Franchise Agreement State Registration Process Operations Manual & Revisions Training Program Train-the-Trainer

Strategy

Legal Documents Quality Control Franchise Marketing Sales & Implementation

Training Video Scripts SkyManual Online Operations Manual Research / Profiling / Brief Franchise Marketing Plan E-Brochure Mini-Brochure Website Development

The iFranchise Group does not provide legal services but instead works through outside legal counsel

Franchise Sales Video Script Franchise Sales Visual Aids Franchise Sales Training & Manual Franchise Implementation Strategy Field Consulting Manual Implementation Consulting

Franchise Program for Moderate Growth Approximate Development Activity Schedule MO 1

MO 2

MO 3

MO 4

MO 5

MO 6

MO 7

MO 8

MO 9

MO 10

MO 11

MO 12

Benchmarking Initial Planning Session Strategic Planning & Gap Analysis

Legal Coordination

Financial Sensitivity Analysis Disclosure Document Franchise Agreement State Registration Process Operations Manual & Revisions Research / Profiling / Brief Franchise Marketing Plan

Legal to sell in 36 non-registration states

With registration, legal to sell in all states

Strategy

Legal Documents Quality Control Franchise Marketing Sales & Implementation

E-Brochure Mini-Brochure Website Development Franchise Sales Training & Manual Franchise Implementation Strategy Implementation Consulting

Franchise Program for Conservative Growth Approximate Development Activity Schedule MO 1

MO 2

MO 3

MO 4

MO 5

MO 6

MO 7

MO 8

MO 9

MO 10

MO 11

MO 12

Benchmarking Initial Planning Session Strategic Planning & Gap Analysis

Legal Coordination

Strategy

Financial Sensitivity Analysis Disclosure Document Franchise Agreement State Registration Process

Legal to sell in 36 non-registration states

Legal Documents Quality Control With registration, legal to sell in all states

Operations Manual & Revisions

We can modify our programs to meet the needs of any company getting into franchising. Our fees can range from $20,000 to $200,000+.

100

Taking the Leap A little fear is normal.

101

The Transition Is Usually Gradual

102

Costs Consulting and legal costs vary based on franchise company’s situation: • Desired speed of growth influences services needed • Ability to do work internally

Do not go into franchising undercapitalized • Legal fees: $15,000 to $35,000+ • Consulting and Development: $40,000 to $200,000 • Organizational expenses: $10,000 to $15,000 • Franchise Marketing: $8k - $15k per sale (six months) • Personnel: varies widely • Can bootstrap growth • Can spend hundreds of thousands

103

www.ifranchisegroup.com 708-957-2300 Additional information from iFranchise Group: •

Speak to our consultants about specifics

•

Copy of these slides

•

“How to Franchise” Video

•

“How to Franchise” Book

•

Digital Franchise Marketing Assessment

104