A strong start for new franchisees is essential for a healthy and growing franchise system. One of the best ways to kick-start a new business is with a big grand-opening marketing blitz. Emerging brands that try to be conservative with the required grand-opening marketing spend do so at their own peril. By Tom Spadea
A strong start for new franchisees is essential for a healthy and growing franchise system. One of the best ways to kick-start a new business is with a big grand-opening marketing blitz. Emerging brands that try to be conservative with the required grand-opening marketing spend do so at their own peril. The goal of trying to minimize the cost to open a new store can handicap a strong opening. A person buys a franchise to minimize the risk of opening a small business and is looking for guidance to get the business up and running as quickly as possible.
As a founder, you probably took the opposite approach with your first location. You fought your way to profitability through incessant guerrilla marketing and the sheer force of your personality. You probably started out undercapitalized and unsure exactly how the market would receive your brand. That is not the profile of a new franchisee. They are relying on the fact that having gone through the process of franchising your business, and you now have a much better idea of where to deploy dollars to have a strong grand opening. If a new franchisee doesn’t buy into the idea of a strong start and the mindset that you need to spend money to make money, then they are the wrong franchisee.
Most franchisees will borrow money to open a location. An extra $10,000 to $15,000 added to a loan and amortized over time is a small price to pay for a strong opening. It also becomes a positive feedback loop as early revenue driven by marketing dollars will reinforce the idea that spending money on marketing drives revenue. Franchisees will get to breakeven faster, which will help validation when a prospective franchisee calls an existing owner who had a strong opening.
Everybody wins! With most franchisors being compensated based on a percentage of gross revenue, higher gross revenue early means more royalty dollars faster. The main job of the franchisor is to help franchisees drive revenue and make money. If you can give them the tools and require them to make the necessary investment in a strong opening, they will be healthier and happier. If a franchisee prospect pushes back, the franchisor should just reply that their motto is: “Go big or go home.”
Tom Spadea
Tom Spadea is a franchise attorney and founding partner of Spadea Lignana, one of the nation’s premier franchise law firms, representing over 300 brands worldwide, from emerging concepts to elite brands that are household names. Spadea is a Certified Franchise Executive, speaker, author and key adviser to many high-level executives and entrepreneurs in franchising. spadealaw.com, tspadea@spadealaw.com