Conversion Franchising: Just What the Doctor Ordered
by Ed Teixeira
The current recession has resulted in significant challenges for small business owners whether independent or franchised. Learn how conversion franchising can be an effective strategy for franchisors, small business owners and the franchise industry.
Art Bartlett, the businessman who co-founded and built Century 21 into a real estate franchise giant is considered the pioneer of conversion franchising. During my franchise career I’ve successfully utilized conversion franchising concepts in two totally different industries as a vehicle for growth.
It’s been reported that 1-800-Flowers recently rebooted their franchise program by targeting independently owned florists. They report having more than 25 independent florists already converting or expected to convert to the 1-800-Flowers franchise program.
The highly successful Dwyer Group, which offers several franchise concepts in the construction trades service sectors, has built a large network using conversion franchising as a growth strategy.
Independent business owners face the same challenges of tight credit and decreased consumer demand that many franchisees are experiencing during the recession. Franchisors have the difficult task of selling new franchises in these challenging times. A successful franchise conversion program can be a boost for many small business owners and franchisors.
Simply stated a conversion franchise is an existing business that is converted to a franchise. Typically, the conversion franchisee will alter their décor, re-sign the business and operate as part of the franchise network. Some conversion programs allow the business to append their former name to the franchise name. While others, require that the conversion franchisee use only the franchise brand name without any alterations. There may be a phase in period before a complete name change. Part of the conversion may include the franchisor performing PR and advertising on behalf of the new franchisee.
The Advantages of a Franchise Conversion Program:
- Opportunity for faster growth of the franchise system. A conversion program can mean adding more franchisees at a faster rate.
- Immediate start-up with little preparation required.
- The conversion franchisee has an existing base of business. This means increasing market share for the franchise brand at a rapid pace.
- The conversion franchisee has existing experience and knowledge operating a business in the same industry segment as the franchisor.
- A conversion franchisee can contribute synergy to the network based upon their business experience.
- Easy to target franchise prospects by identifying conversion targets in the industry. Franchise recruiting costs are lower since the market for conversion prospects can be reached using direct mail, telemarketing or seminars.
The Components of a Successful Conversion Franchise Program:
- The independent businesses must mirror the franchise concept and rather then being in the same industry. Converting a home care agency or residential painting contractor to a franchise is more appropriate than a restaurant that may serve a menu that differs from the franchise. A good rule of thumb for a conversion program is when the products or services sold by the independent business are the same as those offered by the franchise.
- The franchise should have a market presence and brand recognition on a regional or national basis. It will be difficult convincing an independent business owner to convert to a franchise with no significant market share.
- There must be a financial advantage for converting to a franchise. These advantages can include added sales from the franchise brand, lower operating costs, a conversion fee paid to the business owner or lower product or supply costs.
- There should be little cost to convert. If there is a required investment in new equipment and/or altering the current location, forget conversions.
- The business owner must be willing to re-brand their business and follow the franchise program. A successful franchise program is built upon a foundation of franchise consistency and quality regardless of the franchisee or location. Some franchisors fear conversions based upon the fact that a conversion franchisee may be unwilling to alter the way they operate and do business.
- The franchisor must provide an incentive for the business to convert. This can be in the form of lower royalty fees or waiving all or a portion of the initial franchise fee. Some franchisors grant the conversion franchisee a credit for current sales by charging a low royalty fee for the first year.
- Important: franchisors need to perform appropriate due diligence for conversion candidates. Some may have tax obligations or other problems that could surface after the franchise transaction is completed.
Suggested Categories of Businesses for Franchise Conversions include:
- Home care services.
- Children’s services such as tutoring or child care.
- Business services such as business coaching or staffing.
- Home improvements including painting, restoration and remodeling services.
- Maintenance services such as lawn care, commercial cleaning and plumbing.
- Personal care including fitness, hair care and spa services
During these tough economic times a conversion program can be just the right remedy for sluggish franchise growth. Independent business owners that convert to a franchise can become part of a franchise network with brand recognition and market share.
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He
can be reached at firstname.lastname@example.org