The Appeal of Service Brands to Multi-Unit Franchisees Looking To Diversify
When I joined Hand & Stone Massage and Facial Spa last year, one of my biggest questions was related to how a service sector brand would appeal to multi-unit franchise owners.
Hand & Stone’s franchise owners are a successful, committed, and talented group. We are counting on our existing franchise owners to lead the continued growth of our brand. However, we also recognize the opportunity to proactively target successful multi-unit operators who have experience building businesses outside the service sector, including the restaurant, retail, and hospitality industries.
Service brands, particularly retail-based service brands, share some unique characteristics apart from other industries. Chief among these differences is that labor costs are generally the single, largest controllable expense. For example, in most restaurant operations, variable product and paper costs can account for as much as 35% to 40% of revenue. This is in addition to fixed and variable labor costs.
However, in most service models, labor is the largest expense and is largely variable. The composition of that labor tends to be specifically skilled and, in many cases, licensed and/or regulated. As a result, consumer demand will often outstrip supply, making talent acquisition, training, upskilling, and retaining staff the most important operational imperative.
The second biggest difference is the reliability of the business model. Personal and business services tend to be recurring and, in many cases, non-discretionary. This makes service concepts well positioned for membership-based revenue models. The membership structure creates a predictable revenue stream month after month.
Most service companies also have a clear understanding of customer frequency, lifetime value, and acquisition cost, enabling advertising campaigns to be highly targeted. In addition, most service businesses leverage permission-based customer data to drive behavior using CRM systems, as nearly all transactions contain attributable customer data.
A third distinction between service brands and other business models is the importance of creating a great selling culture at the unit level. Service upgrades and add-ons, membership conversions, and retail sales are highly accretive and can be important value drivers. This may be a change in culture for non-service multi-unit operators, but, most service-based franchisors will have strong sales training and marketing programs to support efforts at the retail level.
Of course, many of the fundamentals of the service sector are aligned with those that make operators in any business successful. Operators must focus on delivering exceptional customer service. They must focus on building great organizational cultures in which their team members feel valued and have an opportunity to grow and advance. Operators also must focus on a core set of KPIs to drive the underlying business and to optimize operational and financial results.
Great operators can succeed in multiple conceptual frameworks. Service sector franchise concepts provide a welcome opportunity for successful franchise owners to build a new business segment, to provide new outlets for growth for their teams, and to diversify their holdings.
John Teza is President and Chief Development Officer at Hand & Stone Massage and Facial Spa.
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