You’re the CEO working on the budget, and once again you’re back in that same familiar spot–not hitting the targeted EBITDA your board and ownership wants.
Do you increase revenues or cut expenses? You know royalty revenue is maxed out and you’ve already budgeted aggressively on dollars from your vendors. Cutting expenses means losing staff, reducing technology investment, and fewer opportunities to fund the initiatives franchisees are screaming for.
So where do the roads lead? Same place they did last year and the year before: franchise development. So you start saying to yourself and the team…
- “What if we signed five more deals this year?”
- “What if we increased fees by $10K?”
- “What if we cut lead generation in half?”
- “What if all leads came through brokers?”
- “What if we reduced the team to one person?”
- “What if…”
And before you know it, you’ve convinced yourself and your management team that you can sign 20 agreements, collect initial fees of $1.2 million, and contribute 50 percent ($600,000) toward EBITDA by implementing all the “what ifs” and believing it all will work out as planned. Sure, you bought some time with your board by presenting the desired EBITDA target knowing later you can blame franchise development, fire the person leading it, and maybe survive another year of missing your targeted EBITDA.
DIY or outsource?
Any franchise executive knows exactly what I’m talking about. And often this leads you to consider this question regarding recruitment: Do it yourself (DIY) or outsource? What’s right for my brand?
We can’t forget that a core responsibility for a franchise executive is to optimize allocated resources to create the most efficient and effective ROI to shareholders. ROI can be maximized with the right mix of DIY and outsourcing. What is right for recruitment? That’s a question that requires some attention. I’ve never seen a brand 100 percent DIY or 100 percent outsourced. In my experience, it’s some combination of the two. What’s the right recipe for your brand and current situation?
If you need recruitment to be more variable expense-based, the right recipe likely has a higher mix of outsourcing. This means your monthly fixed cost is lower, but the variable expenses are higher. However, while you eliminated the risk of losses from a low number of signings, you also eliminated the reward of EBITDA contribution with record signings.
However, EBITDA is only one component. The DIY vs. outsourcing strategy discussion must also include the following considerations:
- Candidate relationship during the discovery process?
- Short-term initial fees vs. long-term unit economics?
- Variable vs. fixed investment?
- Onboarding resources?
A signing is an event (sprint) while unit economics is a process (marathon). Champion franchise executives and boards understand solid shareholder value is created not on the signing, but with a successful unit. Whichever recipe you choose, don’t forget to focus on unit economics with everyone on the brand team.