All franchise systems have their top performers, who’ve typically been with the brand for an extended period of time, and know the franchise inside-out. These high performers are an essential base for franchisors, as they serve as an example for incoming franchisees of what is possible, and are a strong revenue base.
It’s often those franchisees who are performing well with a single unit, who then go on to become multi-unit franchisees, something every franchisor is always on the hunt for. Franchisors have to expend fewer resources and time in managing that franchisee as they often run like a well-oiled operation.
“You certainly don’t want to lose your high performers because most franchisors take a royalty based on gross sales,” said Kay Ainsley, managing director of MSA Worldwide.
“In addition, many of those high performers don’t need the same level of support and hand-holding that the smaller or struggling franchisees need. So yes, franchisors definitely want to keep those people in the system, but they also want to balance the growth of the entire system.”
Most franchise agreements tend to run between five to 20 years. That is time in which a franchisor can build a strong relationship with the franchisee. On top of regular meetings and interactions, many franchise brands arrange annual conventions for all franchisees to get together to spend some time with one another, and trade secrets and tips. This serves to bond the franchisee to the brand as the annual convention is something they look forward to, and creates a family environment within the franchise system.
Incentivization is an important ingredient to keep the best franchisees engaged with the brand. Quality franchisees who can run a tight ship will always be in demand, so it’s essential franchisors give their franchisees a reason to stay with the brand, and potentially open even more locations.
“Those franchisees that perform at a high level tend to reinvest in the brand and their business through continued development,” said Brian Kelley, president and CEO of Phenix Salon Suites.
“We are fortunate that, in any given year, 30 to 40 per cent of our development is comprised of existing franchisees building their second, third or fourth location, which is the best sign of brand strength in the eyes of new prospects.”
The very nature of franchising means that the individuals and teams who make up the system, rarely meet in person. With locations scattered across the country, and across the globe in many cases, franchisees have little cause to meet with one another.
“Bringing all the franchisees together for the opportunity to explore ways to continue improvement is important for both the brand and our franchise managing partners,” said Kelley.
“At conventions, our franchisees share great ideas and learn from one another, further bonding as a group and with the brand.”
This is where annual conventions come in, as a franchisor-led initiative. It provides a regular time and place for franchisees, franchise executives and the franchisor to come together to share stories, failings and successes.
“Franchising is based on relationships; the relationship between the franchisor and the franchisee, and the relationships between franchisees,” said Ainsley.
“You want people to feel the brand and culture, and the best way to do that is through personal interaction. The annual conference is a great way to achieve that. It also gives the franchisor the ability to recognize high performers.”
Obviously, conventions serve as venues for franchisors to update their franchisees on the brand, and even potentially share confidential information in a safe environment. It can be used as a learning resource for franchisees, with many conventions including educational sessions within the agenda. The best performers should be allowed to share their insight and knowledge with other franchisees, which would further invest and tie them into the brand and its people.
Many franchising conventions hold roundtables with specific groups of franchisors, executives and franchisees. Franchisors can do the same with high-performing franchisees to ensure that their contribution to the system is recognized, and it helps to develop friendship and camaraderie amongst the group.
While high-performing franchisees do benefit from strong brands, processes and locations, often it is the franchisee itself that makes the difference between mediocrity and a high-performance. It is possible they could achieve similar success in another system that asks less of them, so franchisors must find soft ways to tie the individuals to its system. Forging bonds of friendship and community are the key. Many franchise systems can offer high levels of profit, but it’s about what they can offer above that.
“Franchisees deal with many people at headquarters, and it’s always nice to put a face with a name. Franchisees get to meet the people in marketing, accounting or purchasing that they don’t see on a regular basis. It does create that sense of family,” said Ainsley.
Incentivizing buying more franchises
Multi-unit franchisees are like gold dust to franchisors. They already have significant experience in franchising, likely with multiple brands, too. They often have longstanding connections with real estate developers, financiers and suppliers. Multi-unit owners require less hands-on help than single-unit owners, and can bring in higher revenue.
“Let’s say I’m in a city with a franchisee who owns two locations, and I think it could hold two more,” said Ainsley.
“I might offer that good franchisee an incentive to open those other two locations, which works out to everybody’s benefit. They have a bigger business and I only have to deal with one franchisee in that city.”
The best single-unit franchisees are continually forging strong relationships with partners. Those are the type of individuals that franchisors need to keep in their system, and to grow with the brand. Franchisors and development professionals earn their living by selling franchises and driving performance, so why not help successful single unit-owners to become multi-unit franchisees?
“We aim to be consistent in our offerings, but if a franchisee signs on for a larger number of locations, as many of ours do, we will work with them on a more competitive structure,” said Kelley.
Franchisors could incentivize their best franchisees to truly tie themselves to the brand by offering discounted franchise fees, management fee holidays, reduced marketing royalties or even lowering the per cent of monthly revenue taken by the franchisor. Franchisees find value in much of what they do, from hiring staff to donating to the local community, but the profitability of the brand and franchise is what keeps them there.
Those franchisees are now further tied into the brand, and have been rewarded for their hard work and success with the opportunity to grow much bigger. It’s not uncommon for brands to offer incentives to prospects. In 2019, Dairy Queen released a litany of incentives for franchisees that opened multiple locations within a certain amount of time from opening their first. Julie Davis, the former franchise development director at Dairy Queen, said “these incentives are designed to attract elite franchisees with a fast-track mindset.”
Attracting those types of franchisees isn’t an easy process, therefore brands should also try to engineer and retain ‘elite franchisees’ with effective identification of high-potential individuals and close mentorship.
Education and professional development
Continual professional development is key to creating and retaining those top-performing franchisees. Every franchisee started knowing very little; and a combination of natural acumen, hard work, and sometimes luck, molds that individual into an elite franchisee.
Franchisees are highly motivated people who pro-actively want to work for themselves, and see the fruits of their labor. Offering the opportunity to constantly learn new techniques and best practice is how franchisees increase profitability and make operations smoother. Over time, this accumulation of knowledge and skills, combined with the smooth running of an existing location, could provide the impetus to buy more locations.
“If a franchise doesn’t invest in continual education for franchisees, it’s harming itself,” said Ainsley.
“Franchisees that don’t get that continual education from the franchisor will often go out and find it on their own, which creates disparities within the network of franchisees.”
The chance to continually improve and pick up best practice can be a deciding factor for a franchisee choosing a brand too, as the most successful franchisees have a desire to learn and constantly upgrade their skills.
The cost of retaining is lower than recruiting
High-quality, longstanding franchisees are often the driving force in improvements and the general running of many brands. Many end up joining the leadership team or the board of the franchise because their insights are invaluable, and they have on-the-ground experience to back it up.
Losing these kinds of franchisees can be a body blow, and one that will cost significantly more to recruit and recreate than to have invested in their retainment.
That’s why franchisors need to develop a two-pronged approach with franchisees, whereby they develop a close and personal connection with the brand, but can also see it contributing to their ongoing financial success and personal development.