As this year starts to wind down, small business owners and executives are working on their sales goals and projections for next year. In my industry, franchising, executives are undoubtedly looking at how the credit crunch will affect their new franchise sales.
The unemployment picture is not exactly a masterpiece here in the U.S. There’s even talk of layoffs on the State government level next year as local tax revenues continue to decrease. Payroll tax collections are the lowest since 1963, according to the Nelson A. Rockefeller Institute of Government.
Interest in small business ownership increases during recessions, and the longer one is unemployed, the more open one becomes to looking at “other options.” Franchise ownership is one such option, and most franchisors are experiencing a steady number of inquiries from prospective franchise owners.
As I mentioned in the beginning of this article, the one thing that’s preventing prospective franchise owners from realizing their business ownership dreams, as of this writing, is the credit crunch. The major lenders are not opening their bank’s vaults to a lot of business start-ups, including new franchise openings. During a recent interview with a writer from the Fox Business News Small Business Center, I shared details of a phone call I had with a commercial loan representative of a major bank, who told me that “they were not really interested in looking at business start-ups,” which absolutely floored me. I’m still thinking about that really bizarre phone conversation with the bank representative.
Let’s assume for a moment that the credit crunch will last a bit longer. If it does, could it actually be good news for current franchisees of the 850,000 or so operating franchises in the US. Good news?
Franchisors still need revenue. If they cannot rely on up-front franchise fees from new franchise owners for part of it, then they will have to find ways to increase their royalty revenues. (Royalties are where the rubber meets the road, and the way to riches for franchisors, more so than up-front fees.) The way to do that is to help their franchisees make more money, which means that more royalty dollars will be coming in to the franchise company.
Because the credit crunch will be affecting new franchise unit sales, existing franchise owners could start getting some real personal service. They may start to see more in-person visits by field reps and franchise executives. These visits help franchisors get a street-level view of their franchisees operations, and look for ways to — you guessed it — increase revenues. Franchisees should expect to see some new initiatives designed to do just that. If they have a storefront operation, they’ll will see traffic building activities such as:
- Direct mail coupon campaigns
- In-store contests and events
- An increased use of mobile marketing
If you are a home-based or small office franchisee, expect to see some creative ideas from your franchisor, designed to help your business grow. Things like:
- New telemarketing campaigns to prospective customers/clients
- Technology upgrades designed to make it easier for you and your customers/clients to do business with you
- Localsearch marketing assistance
James Young, the president of Spring-Green Lawn Care, shared with me what he’s doing to ramp up things for his franchisees, noting:
- We have built and rolled out in 6 months time a centralized data structure and built a front end proprietary platform to identify the best prospects in a market utilizing demographic profiling.
- We have expanded our budget for both our national inbound and outbound call centers
- We have been further investing in building out our franchisee web pages with LOCAL content to improve local SEO performance.
- We have increased our budget for paid search marketing to drive additional leads this spring.
- We formed a strategic alliance with the Arbor Day Foundation
This may also be a good time for franchisees to introduce some their own ideas that have brewing for awhile. Franchise executives may be a little more willing to listen to new product and service ideas now, because they have more time to do so, and are experiencing some pain.
The business start-up credit crunch could be just what some franchisors need … some time to look at their businesses from a different perspective, e.g., the franchisees’ perspective.
If you currently are a franchisee, take advantage of the extra support you’ll be getting. Throw some new ideas out there. Your franchisor could be all ears.
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About the Author: Joel Libava is President and Life Changer of Franchise Selection Specialists. He blogs at The Franchise King Blog.
I wonder why it took a bad economy to get franchisees to put more effort into their local SEO and paid search efforts. Both of these options have been available for quite some time. However, I guess it’s a scenario or “better late than never”.
I guess it’s human nature;
“Let’s not do it until we have to.”
The Franchise King
Extremely helpful information. One question…How in the world did you get so many people to tweet this post? That is awesome!
Thanks for your opinion!
The reason that so many people Tweeted this post is because I am The Franchise King.
Kidding. It’s because Small Business Trends is very influential, and has a loyal community.
Care to join?
The Franchise King