What are the Top 3 Ways to Validate Your Franchise Concept?
Prospective franchisees want proof what franchisors tell them during the sales process reflects reality. They’ll ask whether they can be profitable and how much revenue to realistically expect. They’ll want to know if the franchise company is in good standing. What to expect from the day to day operations and whether they are a good fit for the franchise concept are also concerns they want to be addressed.
That’s why the validation process is so important in franchising. Below are three ways franchise candidates can get their questions answered, and how you as the franchisor can convey the benefits of becoming part of your franchise system.
Connect Candidates with Current and Former Franchisees
The most effective form of franchise validation is what franchisees have to say about their experience through face to face conversations. While not directly selling, what franchisees have to say can make or break a franchise sale. The intangibles of an in-person conversation are important. Facial expression along with vocal tone and inflection of the franchisee can help persuade the candidate. The personal connection between the franchisee and candidate can help influence the candidate to invest in your franchise concept.
Face-to-face conversations in business are also considered more credible than online conversations. In terms of hard numbers, the following shows the power of in-person meetings:
- 72 percent of people who prefer to network in-person are influenced by looks and a handshake
- 95 percent of people believe they are essential to long-term business relationships
- 40 percent of prospects are converted to new customers after meeting face to face
Just the act of introducing candidates with franchisees improves your odds of awarding a unit or units to a new franchisee. The transparency involved helps ease the nerves of candidates and is usually appreciated by them, which boosts the perception of you being an honorable franchisor.
But for any of these conversations to have positive impacts, you must first have happy franchisees. Therefore, they need to be profitable and satisfied with how they are treated by the franchisor. Your support system should help franchisees move toward the break-even point and beyond. Training and marketing must be thorough and effective. Franchisees must also feel connected to the franchisor; regular newsletters, conference calls and meetings can help establish the relationship between you and your franchisees. If franchisors are doing everything right, they can count on their franchisees providing positive feedback to franchise candidates.
Shine in Your Franchise Disclosure Document
Your franchise disclosure document (FDD) can also be a strong validator for your franchise concept. But, your franchise system must be healthy, since the strength of your concept is what’s revealed in the 23-item FDD. The information in every item must be conveyed strategically, but also honestly.
Typically, franchise candidates will go straight to Item 19 – Financial Performance Representation, since this provides information on earning potential. Item 19 shows the revenue generated by company-owned and franchised locations. If returns are genuinely strong, franchise candidates will be encouraged to keep reading. If returns are lackluster, they might begin looking at competing concepts.
If they’re encouraged by what they read in Item 19, they’ll be inclined to delve deeper into the status of the concept. After the financial performance, they’ll want to know how much their investment will be. They’ll turn to:
- Item 5 – Initial Fees
- Item 6 – Other Fees
- Item 7 – Estimated Initial Investment
Transparency on costs is important for emerging and established franchisors in order to develop trust among the pool of franchise candidates. Providing accurate costs will also help you attract entrepreneurs who are truly financially qualified. While high costs may give some potential franchisees pause, you can justify the expenses by showing a high return on investment.
Other items franchisees will be most curious about include Item 3 – Litigation, Item 4 – Bankruptcy and Item 9 – Franchisee’s Obligations. However, assume that all your franchise candidates will look for the devil in the details. You will need to craft all items in the FDD with care.
If your franchise concept shows strong returns, fair investment costs, it’s free of any legal issues and is overall healthy and growing strong, your FDD will serve as another positive validation resource.
Share Reviews and Earned Media
Customer validation is also a significant factor when potential franchisees are deciding where to invest their money. It makes sense for entrepreneurs to pursue investment in a concept that has fanatical customers singing its praise versus a concept with no, few or poor reviews.
Positive reviews spur spending since most consumers make purchases based on reviews. Here are a few more ways online reviews are powerful tools:
- 86 percent of consumers read reviews for local businesses
- 91 percent of 18 to 34-year olds trust online reviews as much as they trust personal recommendations
- Consumers read an average of 10 reviews before they feel like they can trust a local business
Positive online reviews not only impact the bottom line of franchisees, but they also contribute to brand reputation and growth.
Direct your franchise candidates to glowing reviews on your social media pages and review sites, such as Yelp, Google, Angie’s List, Better Business Bureau, Manta and others.
Earned media, marketing generated by third parties such as print, broadcast and online news outlets, is also an effective validator for franchise development.
A story on your franchise concept can provide an opportunity for potential franchisees to better understand your goals, history, values and company culture. For franchise candidates who think they are a good fit with your concept, a story might solidify that notion. Similarly, a profile story on a franchisee has the potential to resonate with franchise candidates who relate to the story’s subject.
Bylines and thought leadership articles in business and franchise trade publications shine a light on you as an expert in the field. Such an article or podcast can raise the level of confidence in candidates.
Since most third party sources are unbiased and trusted, readers, viewers and listeners don’t feel like they are being sold something when stories on your franchise opportunity, brand or franchisees run. Yet, they can be quite effective for franchise development. Make sure you share your earned media inventory with franchise candidates to help validate your concept.
To learn more about ways to validate your franchise concept, turn to a trusted franchise advisor: Winmark Franchise Partners. With 30 years of franchising experience and more than 800 franchise owners representing over 1,250 locations for five brands, Winmark Franchise Partners can help grow your brand through sound strategy and expert franchising advice. Contact us here or at (844) 452-4600.