By Evan Hackel

Conversion franchising is totally different from traditional franchising, but if executed correctly, it can be an extremely effective way to grow a franchise business. This issue of Franchising Magazine USA is dedicated to home services franchising, an excellent match for conversion franchising. 

Let’s start out by defining conversion franchising. Unlike traditional franchising where you start a new business with a franchisee, a conversion franchise is already a going concern that agrees to become part of your franchise, and to convert from their current branding to your franchise’s branding. This happens all the time, but you’re likely unaware of it unless you’re currently involved in conversion franchising. I have spent much of my career in conversion franchising.


A Valuable Option

There is much to like about conversion franchising. You’re starting off with a new franchisee who already has a proven level of volume. They also have expertise in the industry you’re in, and a greater likelihood of success because they are not a startup business. 

Think about it. Would you rather start a fresh location with zero history or take over a business with, let’s say, $1.5 million a year in volume already assured – with a proven owner who knows how to run the business?

A much lower startup cost is another positive of conversion franchising, as there’s an ongoing business already in existence. Many of the things that a business needs to buy have already been bought. Still, there will be expenses in renovation and signage and of course, your franchise fee. As conversion franchisees have a going business, it’s much easier for them to borrow or to have the capital necessary to make the conversion.

In some home services businesses, there is no physical location, which makes conversion franchising even easier. 


Considerations to Weigh

There are areas of concern. As Tom Peters says, “It’s a lot harder to unlearn than it is to learn.” The franchisee has a lot of experience, and there are going to be areas in which they feel they know better than the franchisor, making it more difficult to create brand consistency. 

If the business has a physical location, it is unlikely to have the same look and feel as your brand, and it will need to be converted. But given the nature of physical buildings, it’s unlikely that it will have a look and feel that matches your brand. 

Another factor is location. The considerations that drove the selection of the business location when it started might be different from what you would choose today, i.e., the businesses you are converting may be in less optimal locations.


Selling Businesses to Convert

Imagine for a moment that you’re seeking conversion franchisees, and you encounter challenges in finding them and persuading them of the benefits of conversion. For instance, you have a 6% royalty, a 2% national advertising fund, and other fees that equal approximately 1%, so you’re asking a current owner to contribute 9% of their revenue on business they already have. Using the example of a $ 1.5 million business, you’re asking them to give you $135,000 a year on business they are already doing. In contrast, a new franchisee may be less concerned because your fees are all on new and fresh business. In essence, you need to convince the current business owner that joining the franchise is a worthwhile investment.

Of course, conversion franchising is not all or nothing; many systems offer both traditional franchising and conversion franchising.

Why would a currently operating business want to consider converting to a franchise brand? As home service businesses are consolidating, it is much more difficult for independent businesses to be successful on their own. Many independent businesses would be open to joining a franchise brand for the following reasons:  

  • Brand names are trusted by the customer, and although they are never spoken of, consumers will pay more for a brand they trust. So, the independent business operator should be able to increase prices as the consumer trusts the brand.
  • Marketing today is much more difficult than it ever was. Many independent business owners feel lost about how to market their business effectively with all the changes that are taking place. In contrast, a franchisor can invest in marketing tools that make marketing the business more efficient and effective. 
  • The franchise brand has the ability to bring additional business to the independent business from their national marketing efforts and/or from cross-referral programs with other businesses in their portfolio of home service brands if they have them.
  • Service-oriented businesses have very high operating profit margins; if the owner can see through national advertising leads, cross-promotion leads, and more effective advertising, an increase in their business of 20% (assuming they operate on a 60% margin) offers a very good economic return. On the $1.5 million business, they’re going to do $300,000 more in business, which will produce $180,000 in additional contribution dollars, which will more than cover the additional $135,000 in fees. 
  • The franchisor may also be able to help the conversion franchisee how to improve margins, achieve higher average tickets and close a higher percentage of their customers. 
  • The value of buying services cannot be overstated. Franchise brands, such as Neighborly and Authority, really focus on maximizing buyer power for their franchisees. This presents significant savings on the purchase of products and services, as well as rebates to the franchisee.  


Another Factor to Consider

The last factor to consider is that it’s very tough to be in business by yourself, while being part of a franchise system gives you others to connect with. They are going through the same thing you are, and joining your franchise will give them access to best practices and operating ideas that they couldn’t generate on their own. It’s tough being an independent business owner. Not all of them will want to become franchisees, but many will.


Considerations on How to Sell

Selling conversions is a very different process from selling a regular franchise. Your prospects won’t be reaching out to the traditional broker systems. They’re unlikely to respond to an ad. Nor will they be looking at your website. The reason is that independent business people are not necessarily aware that conversion franchising is a possibility for them. You have to have a whole new approach to selling.

When I was actively involved in selling conversion franchises, we would highlight market areas in which we did not have adequate penetration. We would then send a member of our development team into that market armed with the names and addresses of the businesses we identified that we would be interested in. We would then go and physically look at the locations and meet the owners, trying to assess whether they were a good fit and had interest. 

If we knew in advance that a candidate was a prime target, we would attempt to make an appointment. We also leaned on neighboring franchisees to make recommendations, but you must be careful, as they may have bias. This process is most effective when you have a portfolio of brands, as the same person can evaluate more than one brand at a time. 

In the ideal world, we’d find two or three interested parties in the marketplace, creating a degree of competition. 

An alternative to going into a market live is a combination of direct marketing, e-mail marketing and phone calls. Although much less expensive, if the conversion franchisee has a physical building, it’s very important to be able to see the facility. You learn a lot by seeing the facility. Can help you determine if they would be a good fit. Of course you can do a combination of marketing phone calling and then do live visits.

Once we created a critical mass of potential conversion franchisees, we would invite them to a discovery day at our headquarters, which were quite impressive. And we would make a presentation to them that was focused on convergence. We did not mix traditional and conversion franchisees into the same discovery day. 

In terms of references we would connect our prospective conversion franchisees with successful conversion franchisees that were in similar markets.

Unlike in traditional franchising, where the perspective franchisee is comparing you with other opportunities, the conversion franchisee is normally comparing you to not converting at all. Occasionally they would talk to other franchise concepts, but that was pretty rare. What wasn’t rare is for the decision to take longer than selling a normal franchisee. We were stimulating their desire, as opposed to them approaching franchising with the plan to become a franchisee. It was not uncommon for a prospective conversion franchisee to take several years or longer to join. But it was very common to hear a conversion franchisee say, “Hey, I waited many years. I wish I had done this earlier.”

Some independent businesses are fiercely independent, and they are not going to be interested, and that’s just a reality; as someone once said, “No is the second best thing you can hear in sales.”

You need to determine whether an independent person you would like to join your franchise system is not an effective use of your time.

If a conversion franchisee is indeed interested, the biggest hurdle will be your royalty fees, as it will be difficult for the independent to overcome the concept they’re paying you on royalties on business they already have. It is common in conversion franchising to create a royalty phase-in period. If you think about it, the benefits of being part of your franchise system will be phased in. 

Here’s an example of how a phased-in approach could work. Let’s go back to the example of a business that is doing $1.5 million with a 6% royalty. In the year, on the $1.5 million of volume, they would pay a 2% royalty, and then 6% on all the volume over $1.5 million. In the second year, the 2% would shift to 4%; in the third year, all their business would be at the 6% level. In some ways, this mimics a normal franchisee, which can take a few years to ramp up volume.

In Summary . . . 

Conversion franchising could be a great opportunity to grow your franchise business, but it requires a lot of thinking and a very different approach to selling franchises. No doubt, it is something to be considered.


Evan Hackel is a speaker and entrepreneur, he has been instrumental in launching more than 20 businesses and has managed a portfolio of brands with systemwide sales of more than $5 billion. He is the creator of Ingaged Leadership, is author of the book Ingaging Leadership: The Ultimate Edition and is a thought leader in the fields of leadership and success. Evan is the CEO of Ingage Consulting, Delta Payment Systems, and an advisor to Tortal Training. Reach Evan at, 781-820-7609 or visit