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Friday, August 29, 2008

Companies Offer Innovative Incentives To Lure Franchisees as Competition Grows

Franchisers are becoming increasingly creative in marketing themselves.

Some are giving hefty discounts to franchise employees who want to become owners. One is introducing a "lite" version of its concept designed for those seeking a part-time franchise to augment their income. Another is offering a rare money-back guarantee.

As franchises proliferate and competition for new franchisees intensifies, franchisers are using such innovative tactics to ensure their own longevity and success.

Employee Discounts

Dwyer Group encourages workers at its various repair and maintenance franchises to eventually buy their own franchise. For example, employees of some lawn care franchise can discounts off the initial cost of a franchise, which could save the new owner thousands of dollars.

The intention is to help its franchisees attract industrious employees and keep them longer, says Mike Bidwell, president of Waco, Texas-based Dwyer. "And if a person does move on to buy a franchise," he adds, "we get a better-quality franchisee, who has a higher probability of success." Mark Liston, director of sales recruiting for Valpak Direct Marketing Systems Inc., a direct-mail advertising franchiser, says that as competition for a shrinking work force intensified, executives at the Largo, Fla., company asked themselves: "What do we need to do to bring in fresh talent and create franchisees for the future?"

The answer: launch an "earn-and-learn" program that seeks to woo future entrepreneurs graduating from college.

Sales representatives who finish three years in the top performance quartile can qualify to receive the $50,000 initial cost of setting up a Valpak franchise. Alternatively, the company will contribute $10,000 -- either to help pay off a college loan, obtain an M.B.A. or make a down payment on another franchise of the recipient's choosing. Valpak does business with numerous franchisees. So the thinking is that a franchisee that the company has helped out could very well eventually become a client.

Money-Back Guarantee

To accelerate its expansion plans, and reduce the uncertainty of would-be franchisees about buying one of its car-painting shops, Maaco Enterprises Inc. recently introduced an extraordinary proposition: If after the first year a new franchisee hasn't achieved a certain sales level despite having operated a "first-class" business, the company will buy the franchise back. Certain conditions apply, including using sale proceeds first to pay off loans outstanding and any money due Maaco.

Company president David Lapps expects that in the current credit environment Maaco's guarantee will make banks weighing loans to prospective franchisees "much more comfortable with the investment, because it's somewhat underwritten."

Meantime, one franchiser, Homevestors of America, which buys, repairs and then rents or sells single-family homes, has come up with a version of its franchise aimed at part-timers.

Instead of the usual $50,000 fee for a traditional franchise, so-called associated franchisees will pay $12,000. And unlike full-time franchisees, part-timers won't have an annual quota of having to buy a certain number of properties per year. Instead, they will have to generate at least $6,000 in annual fees for the franchiser.

"One problem is money, another is time" in deterring many would-be franchisees, says Homevestors Chief Executive John Hayes when explaining why the firm, a unit of Franchise Brands LLC, Milford, Conn., created the mini franchise.

By: Richard Gibson
Wall Street Journal; August 26, 2008