Joel Libava
Do franchisee sales quotas exist?
Is it something you’ve even thought of?
If not, I’m right there with you.
Because I always thought sales quotas had to do with salespeople who have…jobs. Not franchisees who own their own business.
The Importance Of Reading The FDD
If you’re checking out franchises for sale, there’s something you need to be aware of, so you won’t feel ambushed when you start reading the Franchise Disclosure Document. (FDD) It’s this:
You may need to “hit your numbers.”
Translation: you, as a franchisee, may need to hit a specific level of sales…of revenue, if you want to continue to be a franchisee with your franchisor.
Really?
Salespeople Know This Too Well
If you come from a career in sales, you know all about quotas.
That’s because from the beginning of a sales period until the end, sales quotas gnaw away at you, day-after-day. It’s a lot of pressure.
To sell.
Because if you don’t sell you don’t eat.
But, if you do meet your quota, you (and your family) get to eat. And as an added bonus, you get to keep your job. For at least another sales period.
More On Franchisee Sales Quotas
It’s important for you to know that some of today’s franchise agreements have specific sales numbers for franchisees to hit.
From the SBA:
“The contract between the two parties usually benefits the franchiser far more than the franchisee. The franchisee is generally subject to meeting sales quotas and is required to purchase equipment, supplies and inventory exclusively from the franchiser.”
It gets better.
“As a franchisee, the franchiser often has the right to terminate your business if it fails to operate according to the agreement, becomes delinquent on royalties, or violates other contract specifications.”
What?
Yep.
A franchisor can terminate you if you don’t hit the goals specified in your contract.
Don’t Freak Out Yet
Just because the franchise agreement says you’re required to hit certain sales targets doesn’t mean you’ll be terminated. Just know you can be.
The reality is that franchisors are not looking to terminate franchisees.
They* would much rather have franchisees that stay in business.
*The smart ones.
That’s because legal costs to terminate franchisees can get pretty high. Plus, it’s bad PR, and it shows up on the FDD as “terminated.” Which raises a lot of questions.
Even so, franchisors don’t want to have under-performing franchisees in their systems.
The main reason is it costs a lot of money to keep their franchise system up and running.
For example, most franchisors invest heavily in technology-and upgrades.
Then there’s the need for new marketing initiatives to help franchisees make more money.
The Bottom Line
Franchisors have a lot of ongoing costs. And that’s okay. It’s part of the franchising business.
That said, here’s what to do.
When you’re talking to existing franchisees (as part of your research), ask them if there are sales quotas.
If so, ask them if they’ve found it problematic to hit those said goals.
Next, ask them if they know of any franchisees who’ve been terminated for not reaching sales quotas?
That way, you’ll know…before you sign on the dotted line, what kind of pressure you’ll feel to hit sales goals. To hit franchisee sales quotas.
Finally, you need to hire a franchise attorney to help you fully understand the contents of the FDD and the franchise contract. Including quotas, if there are any.
Got it?
