Remember Terry Wogan?
He used to have people write to him all the time using made up names such as Lou Smorrels, Lola Bido, Mahatma Coat.
Here’s another one for you Al Truistic.
I met a guy last week who’s name might have been Al Truistic. He’s a relatively new franchisor and, as such, is working hard to get his network up and running and his 3 existing franchisees added to.
To set the scene a little bit, so far, he’s done everything right. The pilot works, there’s a duplicatable system, the brand is good and he’s spent a lot of money on a web based software system that will really help him control his business.
The thing is he’s selling all this, including a couple of week’s training, a laptop, stationery (or is that stationary) and three months lease on a mobile for £5,000. He covers his costs.
Given the quality of his offering and what a new franchisee gets, I commented that I thought this fee was a bit low. I’ve seen it before when a franchisor has the flawed logic that says ‘if I give away the franchise for free, I’ll get lots of franchisees and, therefore, lots of royalty.’
In other words, a low/no fee is simply a tactic for flogging lots of franchises to unsuitable people, who decide to give it a punt.
But this guy had a different thought process, one that came from the altruistic, rather than the greedy end of the spectrum. He doesn’t want to make money from the franchise fee (which a good franchisor won’t do anyway), he wants his business, from day 1, to be successful because of royalty.
Okay, a better argument, but one that still misses the point about franchise fees.
The higher the fee, the more there is potential to invest to make franchisees successful quickly. Of course, this has to be balanced with the market rate, etc., etc. The other argument is that £5,000 is still a punt and there’s huge potential for franchisees to come on board and not do much with the territory they’re awarded… probably because they’re busy with other things and the £5k is a throwaway.
And then there’s commitment. There has to be an element of pain in the franchise fee otherwise the franchise just isn’t seen as valuable and is treated as such.
So franchise fee is about balance. The balance between making it affordable, making it valuable and having enough to invest into the success of each and every franchisee.