Franchisors Will Negotiate When You Buy a Franchise
June 11, 2014 12:24 pm 9 CommentsMany people who would like to buy a franchise mistakenly believe that franchisors will not negotiate with them. “It’s either their way or the highway.” But that’s not true.
Now’s no time to be timid
It is true that certain requirements imposed by franchisors are non negotiable, but some deal points can be negotiated, and you should not be timid about getting your way, at least some of the time. If you’re one of the first franchisees to buy the franchise, the franchisor may need you more than you need the franchisor. That gives you the strength to negotiate.
Or let’s say you’re an experienced franchisee who has operated multiple units, or you’re bringing value (volume) to the franchisor . . . in these circumstances a good franchisor will at least consider your point of view and possibly agree to a negotiation.
Do you really want to negotiate?
That said, let me quickly point out that franchisors establish rules and regulations for good reason. I don’t know any franchisors who come up with arbitrary decisions just for the sake of being difficult. Franchisors know what it takes to succeed as a franchisee in their business. They know (or God help them if they don’t, and God help their franchisees) the type of person who makes a great (i.e. profit generating) franchisee, and the kind of work (requiring skills) that needs to be done daily, weekly, periodically to build a profitable business.
Do you really want to negotiate with a franchisor who truly does have the answers to success in his or her business?
Well, maybe.
How well do you know geography?
For example, I was the CEO of a franchise company that sold shared territories. In other words, we would sell X number of franchises into one territory, be it a county or parts of counties in the USA. Every so often a prospect would come in and request a larger territory. In quite a few cases we agreed to the request because the prospective franchisee knew the geography better than we did. The prospect would point out, for example, that the “southern tip” of a particular county belonged in his “territory,” and once we looked at the geography he was right.
If you believe you can make a case for altering the franchise agreement in your favor, ask for it! You may not be victorious, but in the process you’ll learn a lot about the franchisor’s willingness to listen to you and to negotiate. Listening is not necessarily a quality shared by all franchisors.
Beware of a franchisor’s weaknesses
Certain points will not be negotiated, or if they are I would re-think buying into the franchise. For example: Fees. Of course, every prospect wants to negotiate the franchise fee, and/or the royalty fee. But neither is likely to occur, and for good reason. Why shouldn’t you pay the same fee that the last franchisee paid (or even more)? Why shouldn’t you pay the same royalty? Giving you an advantage that another franchisee didn’t get is a good way for a franchisor to open the door to a lawsuit.
Don’t let the notion that franchisors do not negotiate keep you from inquiring about buying a franchise, or from asking a franchisor to negotiate. Franchisors have the capacity to be creative, especially when they see a prospect that they want to claim as a franchisee.
Categorised in: Blog Articles, Buy a Franchise, Franchise Compatibility, Franchise due diligence, Franchise negotiation, Franchisee
This post was written by Dr. John Hayes
9 Comments
Well, this is music to my ears. It’s true that I have been told this in the past. It does seem as though people believe that there is no room for negotiation in these deals. I suppose it is like most things, “don’t ask, don’t get.” I will definitely be reading your other posts as I am keen to investigate this further.
I suppose there is room for negotiation, as in any business deal, but it rather depends on the profitability of the franchise itself, probably meaning that if you are after a particular deal (primarily because it is a profitable one) then you aren’t likely to do that well in negotiations since the seller knows this to be the case.
“If you believe you can make a case for altering the franchise agreement in your favor, ask for it! You may not be victorious, but in the process you’ll learn a lot about the franchisor’s willingness to listen to you and to negotiate. Listening is not necessarily a quality shared by all franchisors.”
This is interesting, is there anywhere where you expand on this? I’m particularly interested in expanding or realigning territories, do you think it would be possible for two or more franchise owners to get together and propose something like this is it was mutually beneficial to all?
This has been a real eye opener to me. I always assumed that franchise sales were very rigid transactions. I have been looking at a few options lately but after reading this post maybe I should hold off. It seems I have loads to learn!
I have been looking at purchasing a coffee shop franchise and buying the coffee beans and other foods/drinks is done through the wider franchise company. Their pricing isn’t anywhere near as competitive as I’d like. Do you think they would negotiate on these prices?
Tony, unless you can present a compelling reason for them to negotiate on these issues, I don’t think so. Imagine if you had a network of 100 coffee shop franchisees and all but 1 paid the same price for coffee beans and other foods/drinks. It won’t take long for the 99 to find out about the favourable pricing for the 1 and you will have a lot of explaining to do — to the franchisor, that’s not worth the trouble. It’s much easier (including easier to defend) to keep the pricing to franchisees the same.
I expand on this topic currently in the A to Zs of Buying a Franchise, which I teach annually at the International Franchise Expo in New York City. I also go into depth in issues of your choice in my coaching programs. Territorial rights are moving targets with franchise companies — whether you or multiple franchisees work together doesn’t matter as much as a franchisee demonstrating why a territory should be expanded or realigned. One word of caution: Larger territories do not in and of themselves make for successful businesses. Many franchisees with “huge” territories have failed — possibly because they were not capable of covering the larger territory.
I think you contradict yourself here. You discuss negotiating, but then advise against talking money- even going so far to say you don’t deserve a discount.
I’d disagree, but I think negotiating is a vital skill for business people of all types. If you can’t look to protect your bottomline and negotiate a good deal- then that should be a red flag for franchisors. They are obviously not profit oriented savvy business people.
Is it unfair when I can buy a car for less because I know to negotiate? I don’t ask for a car for free, but I certainly won’t pay their posted price. Because I know I can do better and still spread the profit around
I understand your argument, Doug. But selling cars is not the same as selling franchises. The sale of franchises is REGULATED by the U.S. Government. And that’s a good thing — it makes it much easier than buying a car! However, franchisors will rarely negotiate price because they’re not selling to one person who drives off the lot and may not return — they are selling to franchisees who will get together at least annually and TALK. And if you’re only paying a 4% royalty and I’m paying a 7% royalty I won’t accept you or the franchisor saying you got a better deal because you negotiated better. It doesn’t work that way. The franchisor publishes an annual document that explains all of its fees for the year — you accept the fees or not. A franchisor will negotiate fees if a franchise prospect brings value — i.e. I already run a competitive business and I am now going to convert my business to the franchisor’s brand. When I do, the franchisor isn’t just getting a new franchisee with zero income, but a franchisee with, let’s say, $1-million in sales. That’s worth something — and I would be sure to negotiate a better deal. But when the playing field is even and franchisees are just starting out, they’re not going to get a better financial deal from most franchisors.