McDonald's Franchisees Still Pessimistic About Brand

The traditional franchise sales model is failing. Brands prioritize short-term success in the form of unit signings and franchise fee collections. Bloated — and undisclosed — broker fees leave them low on funds to support the small business owners they’ve just signed.

Development teams accept sweeping industry averages, like a $13,000 cost per lead or a 1% deal-to-lead rate, rather than looking at the reality of their own system and examining the operational factors that could be influencing franchisee interest. Closing a deal has become the goal, not signing, onboarding and supporting a right-fit owner who will truly be successful in the system, and this pushes a lack of transparency that harms the entire industry.

Franchise model issues

• Art Coley, CEO of CGI Franchise and the ROS Framework, said that franchisors need to be honest about their practices, even if it means a negative headline. He believes that franchising is a beautiful way for small business ownership to succeed.

A strong recruitment system, though, must have the right priorities. Coley advocates for transparency, attention to unit-level profitability and recruitment strategies that are aligned with long-term franchisee success.

• At ROS, they will talk with any brand and tie their compensation to the performance of the franchisees over five, 10 or 15 years. They provide manual systems and analytics for lead generation, appointment setting, sales and onboarding through 36 months. Their model is focused on scalability, durability and wealth generation for franchisors and franchisees.

Industry reform needed

Reclaiming the potential of the industry requires development leaders to confront the uncomfortable realities of how franchising has changed, from hidden broker kickbacks to financial models that make ownership increasingly inaccessible for hopeful entrepreneurs. Coley highlights that more people than ever are actively choosing franchising, and there are still many franchisors who truly care about the success of their franchisees.

• Coley joined 1851 Franchise Publisher Nick Powills to discuss industry benchmarks, capital influence, the current state of development channels, and what it will take to bring the industry back to the supportive, small-business-owner-focused model that early franchisors envisioned.

Powills expressed frustration with the industry's reliance on benchmark numbers, such as the $13,000 cost per deal and the 1% deal-to-lead rate. He believes that these numbers are not specific to the brand and can lead to false expectations.

• Art Coley said that the industry data can be misleading and that people often adopt it without questioning its basis. He believes that the industry average for deal-to-lead rate is now 25 basis points or 50, which means that it takes 200 to 400 leads to sign one franchise agreement.

Powills compared the franchising industry to Tony Robbins' idea that happiness is reachable when expectations are aligned. He believes that franchisors are often misaligned in their expectations due to industry data and false pressures from CEOs.

• Art Coley agreed that expectations are often misaligned and that it can create unnecessary pressure issues. He believes that the industry needs to focus on building successful businesses, not just signing franchise agreements and getting units opened.