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How Much is Too Much Flexibility for Multi-Unit Franchisees?

May 2010 Franchising World

 Multi-unit franchisees have the responsibility to protect the brand by operating inside the franchisor’s system and brand standards. 

By Andrew Cox 
When rapid growth is the goal, selling and encouraging multi-unit development contracts with specific quotas and timelines is an imperative strategy. Franchisees and their staff practice your system standards on a daily basis, serving customers and demonstrating the brand. Selling multiple franchises to one person or group reduces the amount of time spent during both the sales and training processes. Multi-unit franchisees are essential to your expansion; accordingly, they should receive appropriate benefits and advantages.
When awarding area development agreement contracts, there are several areas that allow for flexibility. Building an area development agreement should be specific to the local area in which the franchises will be located. In terms of daily operations, standards must be instituted. System and brand standards manuals mandate specific guidelines for compliance with and usage of the franchisor’s trademarks, policies and procedures. Franchisees are educated on those circumstances when flexibility may be awarded. Many franchisors struggle with the areas and extent of flexibility that should be afforded to their multi-unit franchisees. Excessive leniency may potentially place the entire system at risk, while too little may cause franchisees to feel controlled and under-valued. Identifying these areas of compromise in advance will allow the franchisor to offer specific alternatives to multi-unit franchisees without jeopardizing the system’s credibility or decreasing the value of the brand.
Financial Flexibility 
Providing discounts for multi-unit franchisees is a common practice among franchisors. This may be the most valuable benefit to those owners looking to open more than one franchise. Medi-Weightloss Clinics offers area development agreement contracts that allow the franchisee to reserve a geographical area. Area developers commit to opening a designated number of franchises within a specified   time frame. In turn, the franchisor will not sell franchises in their development area. Area developers may request a discounted franchise fee for each clinic they agree to open. To receive these significant savings, area developers are required to pay a non-refundable development fee up front.
Site Selection Flexibility 
Single-unit franchisees receive a protected geographical territory that is specifically determined by the location’s demographics. Investors who commit to opening multiple locations are able to purchase a larger geographical territory. Area developers are able to negotiate the number of units they will open within their territory. Further, they can influence where the locations will open. This allows them to plan strategically for shared operational and marketing opportunities, such as television advertising co-ops or traveling or shared staff.  
Development Schedule Flexibility 
Once the development area and number of franchises is agreed upon, the franchisee participates in the decision with the franchisor about the time frame during which he must open his locations. Area developers can influence growth rate; the franchisor could potentially open franchises with single-unit owners at an expedited rate. The schedule should be adjusted based on the specific needs of the franchisor, franchisee and the local area. The schedule should appear in the area development contract and should be enforced to ensure optimum growth. 
Operational Flexibility 
Area developers have the flexibility to operate their franchises as a co-op or regional group. One opportunity is for area developers to operate and control a regional call center. This can be can be implemented in order to direct all phone calls and Web leads for the area to highly-trained employees. Area developers can also hire traveling or regional staff members. This can make scheduling easier. It can also reduce time and money spent on new hire orientation and training.    

Marketing Flexibility 
Marketing is one of the easiest and hardest areas to offer flexibility. The best approach is to provide your franchisees with high quality, effective marketing tools that can be customized to reflect local customer demographics and habits. Our company has an internal Web portal with marketing resources where franchisees can view all available campaigns and request specific artwork to be developed for all of their marketing needs. Since creating and increasing brand awareness is a top priority of the franchisor, it is crucial to oversee all messages your franchisees are advertising to the public. Provide marketing flexibility by allowing the multi-unit franchisee to select custom images or add localized information or offers to their advertising material. Provide templates to approved vendors and give franchisees the option to choose which template works for them. 
An area developer can receive significant savings by purchasing media as a co-op. While single-unit franchisees can form a co-op, the multi-unit franchisee becomes the co-op and can control all discounts and marketing messages that are being promoted in the area. Often small business cannot afford to purchase effective television, radio, outdoor, and sponsorship campaigns because the audience cannot be localized. Combining advertising dollars from several locations will allow the franchises to obtain maximum frequency and reach.  
Brand Flexibility 
The brand is the franchisor’s most important asset. It embodies all that the franchise offers. Without brand recognition and success, there would no longer be a demand for new franchises. Protecting the brand should be a responsibility shared equally by the franchisor and the franchisees. There should be no flexibility awarded to any franchisee that wishes to participate in activity that is “off brand.” With the overwhelming popularity of social media, franchisees must view   themselves as part of this global market. They must consider their franchise(s) as a part of the whole brand. Their customers will find and interact with customers from other regions on the Internet through social media.   
Often, when an area developer takes advantage of flexibility and operates outside of system or brand standards, it is often because of lack of communication. It is important that the franchisor have field consultants who are responsible for maintaining all communication with the franchisees. Equally as important is listening to the multi-unit franchisees’ ideas and suggestions. They have experience working directly with consumers and can offer first-hand insight on customer complaints and trends.
Consider creating an incentive program for your franchisees that encourages suggestions and ideas. Promote the internal incentive to your franchisees. Take all suggestions and reward the top contributors. When you implement a franchisee’s idea, be sure to provide recognition.

When a multi-unit franchisee takes advantages of flexibility and endangers your brand, it is important to clearly address why their actions are not appropriate. Communicate with them any specific reasons why they need to discontinue the activity. Consider addressing the following topics:

   • Legal issues: If their action has legal implications, be sure to have your attorney outline the specifics before your discussion. Ask the franchisee if he is aware his action places the entire system at risk.

   • Industry specific regulations: As in all fields of medicine, there are state and federal laws that franchisees must obey regarding privacy, prescriptions, and operational issues. Review any industry specific regulations and ask your franchisees if their actions are compliant.

   • Brand consistency and awareness: In addition to acquiring new leads, the goal of all marketing should be to promote brand awareness nationwide. Ask franchisees if their marketing contributes to this goal.

   • Brand loyalty: The consumer should experience top customer service at all touch points in order to refer your product or service. Ask your franchisees if their actions add value to the customer’s experience.  

How Much Flexibility is Too Much?
Multi-unit owners have more financial flexibility, site selection flexibility, development schedule flexibility, operational flexibility, and marketing flexibility but should never have brand flexibility. Franchisors should consider allowing a multi-unit franchisee that practices any activities that endanger the credibility of the brand or puts the system at legal risk too flexible. Remind your multi-unit franchisees they have the responsibility to protect the brand by operating inside the franchisor’s system and brand standards, which in turn creates more value for them. All franchisees are concerned about increasing the value of their investment, and preserving the brand integrity is essential to this. 
A Note on Selection 
Multi-unit franchisees play a key role in growing a franchise, as long as they have been selected properly. We select “people like us” to purchase and run their physician-supervised weight loss clinics. “People like us” refers to hard-working individuals who appreciate an ethical and effective approach to combating America’s obesity epidemic. Approximately 50 percent of our growth has been internal. We welcome multi-unit franchisees.
Andrew Cox is the senior vice president of business development for Medi-Weightloss Clinics. He can be reached at 813-228-6334 or  .