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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. While a recent FTC settlement may represent some movement in the right direction, the industry at large needs a reset.

• A strong recruitment system 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.

Art Coley, CEO of CGI Franchise and the ROS Framework, said on a recent episode of the Meet the Franchise podcast, “We’ve got to be willing to get honest, even if that means a headline or news gets out that isn’t pretty.” Coley is the creator of the Recruitment Operating System®, a framework developed to help franchisors optimize their own development efforts rather than relying on broker networks or lead generation agencies.

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, we'll talk with any brand. We will even tie our compensation to the performance of your franchisees over five, 10 or 15 years.
• We aren't brokers or an FSO. Think of us as the franchisor to your franchise development.
• We provide manual systems and analytics for lead generation, appointment setting, sales, and onboarding through 36 months.
• Our model is focused on scalability, durability, and wealth generation for franchisors and franchisees.

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.

• We have a proven system that works, and we can show any franchisor the data.
• Personally, I feel like I'm finally getting the opportunity to make meaningful changes in our industry, which is very fulfilling.

Nick Powills: I hear everybody coming back from the Franchise Development Conference, and I keep on hearing the numbers: "The cost per deal is $13,000, and the cost per lead is this." I hear this stuff, and I start getting frustrated by it. Why are we using these benchmark numbers when the truth is it's always going to be specific to the brand?

Unit-level economics are king. If you can't make money, you can't get a payback on your initial investment, or if it takes a long time, it's going to be harder to sell franchises. The brokers have already disrupted everything. They're capturing all the leads. So I hear these data points, and then I talk with franchisors that are using it as a reference point, and I get irritated by it, because I'm like, "Why don't we just look at your specific data?"

When you hear industry data, or you're looking at or talking to a franchisor that has false expectations with upside-down unit-level economics, how does it make you feel?

Art Coley: It hurts. The industry data stuff in franchising, it reminds me of that phrase, "The road to hell is paved with good intentions." I don’t mean that in a sarcastic or humorous spirit; I'm serious. I think people in our industry are trying to offer help.

People are intending or trying to get real information. A lot of times, what happens is people start really vomiting from the mouth, and that ends up turning into just mistaken beliefs, false beliefs, unknowingly and all.

Most of the time, I really do believe it's unintentional. But that, in many ways, is the result of people not really knowing even their own data and being hungry for just anybody that comes along that can offer you some kind of nugget or inspiration to help you have what you think is a baseline or a milestone or some kind of KPI.

Nobody's stopping to say, "Okay, what's the basis of that? Where does that come from?" We just hear something in our industry, and we're often guilty of just adopting it. One of them, Nick, is the old thing about the 1% rule. I heard that for years going to conferences: “If you get about 100 leads, you'll sign one of them, and if you get 1,000, you should be signing about 10.” It still is out there. It's out there a lot less today because enough franchise owners are saying, "Wait a minute," but we know that the industry average now is 25 basis points, maybe 50.

If you're building your whole platform and thinking that, okay, if I'm at the industry average, and you just kind of should show up, should be signing one out of a hundred, and the real number for you might be one out of six hundred, you've got a problem. You've got a problem. And unfortunately, this is the reason why ROS exists.

It's an unfortunate thing, because if all of that wasn't there, we probably wouldn't have a business. And the truth is, my business is at record sales. We've got more brands wanting to work with us than we will take on. Again, I'm not storytelling; I'm not pontificating or anything.

Are we looking at intelligence issues? Are we looking at unnecessary pressure issues? What is even creating this? Obviously it's good for your business, and it's good for ours, because we can create solutions to try to solve it, but is it intelligence? Is it expectations? Is it something else?

Coley: Backing up, Nick, in some isolated cases it can create some opportunities for businesses like yours and mine. But you and I would trade it in a heartbeat if we didn't have that case, because we're still going to get the business that we need. People still need help, even if all the data and baselines are right.

But it's bad for the industry, because what we end up doing is we start selling versus recruiting. Nobody ever disagrees with this: the value to franchise recruitment and franchise development isn't about signing franchise agreements and getting units opened.

They never said that. They always say, "If we can go get 100 units going, and they're averaging $3 million a unit and we've got $300 million in sales."