6 Huge Mistakes Franchisors Make When Outsourcing Franchise Sales
Organizations that specialize in outsourced franchise sales are springing up faster than ever. Many franchisors think that focusing on until-level economics and franchisee performance and no longer worrying about franchise sales will lead to higher profitability and greater operational excellence.
That’s their hope.
And many franchisors are seeing those hopes dashed. Why? Because too many outsourced franchise sales companies either aren’t producing the excellent results they promised or they are extracting far more value than they create. Franchisors could have avoided these disasters if they knew what to avoid, what questions to ask, and when to walk away from the negotiating table.
Below is a list of six common mistakes franchisors tend to make when hiring outsourced franchise sales companies to represent their brands. Please don’t do this.
1. Confusing “years of experience” with competency and results. Many outsourced franchise sales firms burn through clients looking for the one concept that might take off. Demand their complete client list, not just a list of their few victories — even a blind squirrel finds an acorn from time to time. You would be shocked to learn how many outsourced franchise sales firms fail their clients on a regular basis and then move on to the next concept, leaving wasted budgets in their wake.
A strong outsourced franchise sales team can help your brand succeed. A weak team just rides your coattails and requires that your brand help them succeed. Always check references.
2. Hiring outsourced franchise salespeople without meeting them first. As far as the franchise candidate is concerned, the outsourced franchise salesperson is an extension of your brand. The salesperson makes the first impression on a prospect, and how a prospect thinks of you begins and ends with the salesperson.
You “own” everything they say and do. With each conversation, they are either adding value or tarnishing your brand. Meet with prospective salespeople in person before you sign a contract. It doesn’t matter how much you connect with a firm’s owner or sales rep — you’re hiring the salesperson, not the firm. The owner isn’t handling your sales calls — the salesperson will be responsible for that.
Most importantly, make sure the salesperson is a culture-fit for your brand and can emulate it for candidates so there isn’t an immediate disconnect that kills trust. Consider having them interview you as if you were a prospective franchisee or ask them to pitch you your own brand. If you were a lead, would you request to take the next step in the process or politely excuse yourself so you could go shower and rinse off the sleaze?
3. Hiring an outsourced franchise salesperson you would never hire as an employee. Look the person in the eye and ask yourself, “Are they instantly credible?” Have them role-play some steps in the franchise sales process. Ask youself, “Did I trust the feedback or was I being ‘sleazed’ and manipulated?” “Is this how I want my brand represented?” “Are they a fit for my company’s culture?” and most importantly, “Would I hire this person?”
If the work style, work ethic, communication style or skill level isn’t up to your internal standards, then don’t move forward. If you don’t think they can connect to your target franchise candidate, take a pass.
4. Paying commission only. Franchisors tend to think commission-only relationships save money and mitigate risk. In reality, they dramatically increase risk and tarnish the brand.
Professional franchise recruiters earn their value in two ways: first, by recruiting high-quality franchise candidates. Second, by screening out mediocre or weak candidates, thus eliminating potential failures or the possibility for operational problems down the line. When franchisors pay commission only, they put salespeople in a position to recruit questionable candidates.
Typically, it takes about 120 days for a new franchise salesperson to recruit their first franchisee. This means they are working at least four months for free and burning through their savings in the meantime. Just like everyone else, they need income. Sometimes this prompts them to turn a blind eye to red flags and push marginal candidates through the process, creating long-term operational problems for short-term money.
In addition, commission-only salespeople will focus on closing deals when the pipeline gets fuller and won’t give time or attention to new leads coming in. They might have one great month and then not close anything for several more months because they let too many leads fall through the cracks.
If you pay a retainer, you will get a more skilled recruiter who produces results more consistent with your company’s long-term objectives. The retainer should compare with the equivalent of a salary for a full-time franchise salesperson in the same role.
5. Being one of many. Many outsourced franchise salespeople and firms work more than one account. If the salesperson assigned to you is working with more than one account, expect to get substandard results. Telling brand stories, building rapport and establishing a culture fit take focus and effort. Few salespeople can easily switch from one brand to another and do a good job. In our experience managing development, salespeople handling more than one account do great on one and stink at the other.
They will ignore the franchise that is harder to sell in favor of the short putt. Make sure the franchise salesperson’s livelihood is tied to the success of your brand, and make sure you have exclusivity so your outsourced salesperson is committed to you.
6. Paying outsourced franchise sales company royalties. Never, never, never, never, ever pay royalties. If the outsourcing company steers the conversation towards sharing in the royalties, stick your index fingers in your ears and immediately start singing the national anthem (or whatever foolproof strategy you used to immediately halt unpleasant conversations when you were 12). If you agree to royalty sharing, you will wipe out your operating margins, rob your reinvestment capital and lose $4-$8 of equity for every $1 you pay the outsourced company in royalties. Don’t do it. It’s a win for the outsourced franchise sales firm and a total loss for you. Pay bonuses instead. Even consider paying a small percentage of the increase in companies’ equity positions as a result of growth. But stay away from sharing royalties.
Given the overall lack of sales talent in franchising and the poor performance numbers journeymen salespeople are posting today, we understand why there is a booming market for outsourced franchise sales. Stick to our rules above and you’ll make a much better decision for your brand.
Are you thinking about outsourcing your franchise salesforce? Start a conversation with Franchise Performance Group by filling out our contact form or calling 615-628-8461.
BTW, we don’t charge royalties.