McDonald's sued in discrimination case, new franchise questions arise

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.

• Industry benchmarks such as $13,000 cost per deal and 1% deal-to-lead rate are often based on averages rather than individual brand performance.
• These benchmarks can lead to unrealistic expectations and a focus on short-term success rather than long-term franchisee success.
• A strong recruitment system must prioritize transparency, unit-level profitability, and alignment with long-term franchisee success.

Franchise industry issues

Art Coley, CEO of CGI Franchise and the ROS Framework, emphasizes the need for honesty and transparency in the franchise industry. He advocates for a focus on unit-level economics and long-term franchisee success.

“We’ve got to be willing to get honest, even if that means a headline or news gets out that isn’t pretty,” Art Coley said. “Those behaviors unfortunately happen too much in the industry, and that in itself is an injustice because franchising is beautiful. It's the greatest invention, in my opinion, for small business ownership.”

Recruitment solutions

Coley's company, ROS Framework, offers a Recruitment Operating System to help franchisors optimize their development efforts and improve their recruitment strategies.

“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,” Coley said. “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,” he said. “Personally, I feel like I'm finally getting the opportunity to make meaningful changes in our industry, which is very fulfilling.”