March 2015 Living Large: Franchisors Try to Pump Up Sales

Whenever young franchisors get together they discuss: How are you getting prospective franchisees? Our three Living Large CEOs, whom we’re following all year, share different approaches to ramp up sales.

Executive Care’s CEO Lenny Verkhoglaz is taking the broker route to increase franchise sales. With 12 units of his home healthcare franchise sold, he believes it’s the best way for an unknown brand.

“It’s not just an easy slam dunk” to sign with brokers. “They go through a vetting process; you can’t just send them an email.”
— Lenny Verkhoglaz, Executive Care

“Brokers are very much needed, especially in ramp-up,” he says. “Brand recognition isn’t there, initially. Brokers become your cheerleaders, because they want to make money and they promote you.” As his brand becomes more well-known, he figures he’ll be able to lessen his reliance on brokers.

He’s signed on with three groups: FranChoice, The Entrepreneur’s Source and Franchise Brokers Association, and is working to sign with a fourth, FranNet. All focus on working with franchises, a must in his view.

But it takes a lot of effort to sign an agreement with a broker. “It’s not just an easy slam dunk,” he says. “They go through a vetting process; you can’t just send them an email.”

The first hurdle is getting on a broker’s list in the first place. “If they have a lot of concepts that are similar, let’s say in home healthcare, they don’t want another one,” he says. “You have to make a case for yourself. You have to have differentiators, why they would consider putting us in their inventory.”

Brokers have annual conventions, he explains, like the recent FranChoice gathering in Phoenix. “We were presenting ourselves to a group of about 55 brokers. We have six minutes to present ourselves very quickly to the group, and we did it more than three times over the course of three days.”

Fees range from 80 to 100 percent of the franchise fee, depending on the group. “That’s not our driver,” to get franchise fees, he says. “Our driver is to get franchisees” and so gain the long-term royalty stream. “We’re happy to give the franchise fee away.”

Franchisors also pay a membership fee to brokers that Verkhoglaz calls nominal. He likes that brokers’ fees are paid only when the franchisee signs on the dotted line, and he also appreciates the advice that some broker groups publish.

Once franchisors sign with a group, the race to get the best brokers is on. “There are good brokers and there are better brokers. Every group, every organization has stars, and all the franchisors gravitate to top-producing brokers.” The key is to find brokers who particularly like your concept, and to keep communicating with them about your brand.

He considers signing with brokers to be “definitely, definitely a big accomplishment,” and his franchise is getting solid leads—with 160 broker leads total in 2014, he says. “We are getting concrete leads.”

‘A control thing’

“As a small franchisor, it’s hard because you can’t afford  everything.”
— Nancy Bigley, Bottle & Bottega

Nancy Bigley, CEO of Bottle & Bottega, was using four different portals to generate leads for her franchise at a cost of about $500 each per month, and closing the leads herself, but wasn’t finding success. She switched to an outside sales firm, instead, which acts as her sales management team but isn’t on her payroll.

“As a small franchisor, it’s hard because you can’t afford everything, like bringing on a full-time salesperson,” she says. The first year she handled sales herself, but it took its toll. “The ups and downs just really got to me. It’s a very tough position. You think you have a great candidate, but then you have to be able to say no if they’re not the right fit.”

Bottle & Bottega generates the leads, and then turns them over to the outside firm, Sells Development, based in Franklin, Tennessee.  She pays a monthly retainer to the firm, plus a commission for each franchisee brought on board, and that formula of retainer-plus-commission has been re-worked several times to get the right balance.

The arrangement has been working better lately, she says, since she increased communication between her team and the outside sales force, holding monthly phone calls and bringing them to annual meetings.

She finds her best leads come from customers, especially those who come to “pop-up” events. As soon as a Bottle & Bottega franchisee signs, they begin looking for a site. But before the grand opening the franchisee holds wine and art-making events in restaurants or bars, to get a feel for the business and spread awareness.

Bigley has begun making sure to include an extra banner at such events,  proclaiming that Bottle & Bottega is a franchise and other territories are available for sale. She also makes sure to include such verbiage on all materials—a simple item, but sometimes overlooked. “I think it’s a great thing for franchisors to do an audit of their collateral every six months, just to make sure that we’ve got that simple message on there every time. It’s an inexpensive thing to do.”

Bigley has steered away from brokers so far, because she thinks those services are expensive, and “I think it’s a control thing for me, to be honest,” she admits with a laugh.

She’s also bullish on Proven Match, a software program offered through FranNet. For $45 per assessment, the software analyzes each franchisee and identifies characteristics of ‘A’ owners.

“I’m really excited about the next level of that, which is the marketing side,” Bigley says, or identifying messages that will appeal to those most desirable franchisee prospects, and learning which publications and websites they read.

Bigley says she, like all the other franchisors she knows, keeps trying different tactics to get the best results. “It’s a fun little puzzle out there,” she says.

Working all angles

“Everybody’s got to work it, because there are so many franchise options in the world.”
— Tom Lewison, Wild Wing Café

Just last month Tom Lewison, CEO of Wild Wing Café, ended the franchise’s relationship with brokers and brought all sales activities in-house, for now.

“We felt there was a disconnect between where we were going directionally and what some of the prospective franchisees were told. We didn’t think we were sympatico,” he says, but he may re-visit the decision next year.

It’s all part of the adjustment game, as franchises figure out how to accelerate sales. Wild Wing has one full-time salesperson on staff, and Lewison himself does much of the closing after prospects are narrowed down.

He’ll also consider negotiating incentives on a “one-off” basis, for an existing franchisee who wants to develop more units, for example. But he doesn’t like a formal incentive program, as many chains offer, for new franchisees. “I’m not a fan of that. I hate having to chat with the existing franchisee and explain why I’m discounting the new person,” he says.

Lewison’s silver bullet for growth is lining up two REITs, or real estate investment trusts, and three build-to-suit groups, that will provide financing. “They want to do corporate stores, but then we say we won’t do corporate stores unless they work with the franchise community, too,” Lewison says. “This is one of the tactics that I used when I was at Bojangles,” where he was CEO. “It’s probably one of the biggest accelerators that I found, helping franchisees find someone that will work with them to get restaurants open.”

Wild Wing’s short-term goal is to bring in five or six new, strong franchisees a year, “and then in subsequent years get the compounded growth,” he says, and adds they’ll keep trying different tactics. “Everybody’s got to work it, because there are so many franchise options in the world.”