Two primary selling points for many franchise systems are a well-known trademark and an established market that drives business to a franchise’s door. A corollary component is a strong lead generation program designed to funnel a steady stream of leads to franchisees. Protecting a franchisee’s right to share in leads, especially leads generated by the franchisee’s own advertising and marketing efforts, is a key component to defining the franchisee’s protected market. (See our previous post about how franchisors are also cutting franchisee territories.)
In an ideal situation, a potential customer will fill out a consultation form on the business’s main website or call a customer service phone number and be forwarded to the nearest franchisee. Franchisees count on these leads, especially in the beginning as they work to build their reputation and visibility in their territory. While many franchisors faithfully pass leads to their existing franchisees, the AAFD has been receiving an increasing number of complaints that franchisors abuse their lead generation programs by using leads to sell new franchises rather than forwarding the lead to the franchisee who effectively earned the business. In fact, franchisor lead abuse has led directly to the formation of several AAFD Chapters. This abuse usually happens in one of two ways:
Withholding Leads for New Franchisees
Certain franchisors are primarily concerned not with supporting the growth and success of their current franchisees, but rather in bringing on an ever growing number of new franchisees. These businesses almost always rely heavily on new franchise fees as their primary revenue driver rather than royalties from current businesses.
We’ve seen several instances where a franchisor will collect leads that should go to existing franchisees, package them together, and offer them to potential new franchisees as an incentive to buy into the franchise. Not only does this system starve current franchisees of profitable leads, but the new franchisee may find their own pipeline of leads drying up as soon as the franchisor focuses on new franchisee prospects!
Favoring Company-Owned Establishments
Franchisees have also reported to us that a number of franchisors will send all or most of their leads directly to their company-owned stores rather than to their franchisees. This allows them to collect more profits from the establishments directly under their control while franchisees struggle to drum up their own business!
If a franchisee suspects that a franchisor is withholding leads or unfairly supporting a company-owned store, they absolutely must speak up. Every franchisee pays into a collective marketing fund, which represents the entire brand. It is these marketing efforts that often generate the lucrative leads that immoral franchisors use for their own gain. Franchisees who pay into the collective marketing fund have a right to a fair share of the leads that result from those marketing efforts.
If you suspect that your franchise system is playing fast and loose with leads that your marketing dollars have helped to generate, contact the AAFD for a legal referral to determine if your contractual rights have been violated. If your franchisor is not willing to respect the interests of existing franchisees in its lead distribution policy, it may be time to consider forming a franchisee association to collectively fight for fair treatment.
