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Referrals are vital to franchise system growth. As noted in the May FUSR, studies validate the power of referral sales. Close rates for direct referrals are typically three times higher than for other leads. According to Franchise Update Media Group's Annual Franchise Development Report, referrals continue to be a top franchise sales producer every year.
Some franchisors aren't generating any significant referrals. If their problem is triggered by poor system support and struggling operators, this is very understandable. But some franchise systems with good validation still lack referral activity. This is often the fault of the franchisor. Sometimes franchisees haven't been asked for referrals. In some cases, they weren't educated about the advantages of having franchise neighbors and national growth. Consequently, these owners may be reluctant to refer prospects, concerned only about potential territory encroachment by a new franchisee
.Savvy franchisors recognize they must communicate the direct benefits to their franchisees about how franchise growth can increase branding and equity, reduce costs, provide greater competitive strength, expand research and development, etc. Ironically, some franchisors emphasize this powerful message when they recruit new franchisees, but then stop spreading the word once they join the system. Promoting the growth benefits of franchise development is a year-round effort.
The best time to introduce your referral program is when your franchisee signs the contract. Include a clause that requires franchisees to participate in promoting franchise opportunities, with an agreement to display corporate brochures in their operations, and acknowledge that "franchise opportunity" taglines can appear in their retail pieces. I know of a sign franchisor that incorporates a franchise brochure rack into all store designs, clearly specifying that its exclusive use is for recruitment material and that it must be stocked at all times.
But how can franchisors get some of its older, less enthusiastic franchisees to actively contribute to a referral campaign?
Develop a special referral program providing additional recognition and rewards for franchisees who embrace franchise development with their full participation by validating your system success, displaying and distributing franchise materials, and producing qualified candidates through their efforts. The greater incentives in such a program can prompt other franchisees to join in, especially when they see a higher referral fee for the VIP participants.
Tell your franchise system who your franchisee builders are. Recognition is a powerful motivator. Applaud those who champion the expansion of your brand.
At your annual convention, consider referral awards as part of your franchisee presentations. Individuals assisting in the growth of your franchise system deserve special recognition. Illustrate the important contribution of referrals, asking franchisees in the audience who were introduced to your system through other franchise owners to stand up. What a powerful impact this can make.
This is an excerpt from my book, "Grow to Greatness: How to build a world-class franchise system faster." Order copies at www.franchiseupdate.com/magazine/growtogreatness/