Does a franchisor provide franchisees with sales leads?

John Pratt writes:

The majority of franchises do require franchisees to sell and very few franchise businesses can simply rely on leads being provided to them. Within that simple statement there are a number of variations.

Some franchise agreements envisage that the franchisor will obtain national or regional accounts, which will be contracts the franchisor enters into with a customer and which one or more franchisees will be required to perform.

Usually, these contracts are less profitable for franchisees than contracts they obtain themselves. The reason for this is that large customers will generally seek to obtain better terms than smaller ones.

The danger for the franchisor of this approach is that franchisees become accustomed to the work simply flowing at albeit a reduced margin and, as a result, become too comfortable.

Other franchises, such as parcel delivery specialists, simply require franchisees to perform services in respect of contracts entered into by the franchisor, but many do not consider these arrangements to be true franchises.

Usually franchisees have to find their own customers and that’s why franchisors appoint franchisees, because franchisees are local, know their local market and it’s much easier for them to find customers in their allocated territory than it is for the franchisor.

John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.