Service Franchises Serve Up Success - Part 1

Money Mailer cashes in with coupons

Cooperative direct mail, also known as shared mail, is one of the most reliable and cost effective ways for businesses to increase their sales. Money Mailer has been thriving in this $2 billion industry since 1979 and currently produces and mails over 150 million envelopes chock-full of coupons every year. Dennis Jenkins, Vice President, Franchise Licensing, reports that Money Mailer is experiencing record performance. "The last three years have been the best three years in our company history," says Jenkins.

The $52 billion direct mail industry in general has been booming. "With the 'National Do Not Call List,' a lot of the companies that used to use telemarketing are now using direct mail," explains Jenkins. "But our company got an extra boost a little over two years ago when we were acquired by Roark Capital Group, the same company that owns Carvel, Fast Signs, and Seattle's Best. They have given us access to resources that we didn't have before. It is an exciting time for us and we expect this year to be another record year."

No inventory, no storefront
With Money Mailer, a storefront is unnecessary because the franchisee's primary function is to secure orders. This is not your typical run-of-the-mill sales job though. "Our franchisees use the consultative approach which means you're not just another salesperson touting your wares," says Jenkins. "As a Money Mailer franchisee, you serve as a small business marketing expert to the local businesses in your territory. That is your focus. Once the orders are secured, they are sent to our corporate facility and we do the rest - printing, insertion, addressing, mailing, and Internet placement."

There are approximately 23 million local small businesses in the U.S., all looking for cost-effective ways to market their goods and services. Jenkins says, "Money Mailer has clearly defined our niche as that local community based business. The top categories would be food, automotive, professional services, home improvement, and so on."

Jenkins says focusing on the local business is key. "We offer a 3-pronged marketing strategy for business owners to reach local residents directly around their location. The specific programs are designed to reach new movers, shoppers, and loyal customers. With other forms of advertising media, they might be reaching an audience that would not normally drive the distance required to patronize their store. The added advantage is being able to share the costs of paper and postage with other local businesses in the area to significantly reduce advertising costs," says Jenkins.

There are a handful of other shared mail companies, but Money Mailer is the only one that uses a larger oversized format. Jenkins says, "We use a 6x9 envelope versus a standard #10 so the ads are half page ads versus the industry standard which is a third of a page. That means we are giving the advertiser 67% more image area to really drive home a more compelling message. The result for the business is they will typically get better overall response with Money Mailer. We know it works because this is the most measurable form of advertising there is. In order to save money, the customer has to bring the coupon into the business. Now the average business owner isn't going to track this down to the fourth decimal point, but still it is very easy to measure results - unlike radio and TV."

Money Mailer opens second location
Business has been booming at Money Mailer. It's been so busy, in fact, that the company had to open a second processing plant. Jenkins says, "Our new facility is now fully operational. The original 100,000 square foot facility is still open in Southern California. The new one, 58,000 square feet, is located in Virginia. It now supports all the franchisees east of the Mississippi."

The new facility makes it possible for the company to grow even faster. Jenkins says, "We now have just under 300 units and we could easily double that number. We feel the magic number is somewhere between 600 and 625 franchisees. That would saturate the reasonable domestic territories in the country."

There are two profiles for potential Money Mailer franchisees. "One would be someone that has a consultative sales background," says Jenkins" meaning they've sold Yellow Pages or been involved in the advertising industry in some way, shape or form. And that person is a relationship seller as opposed to the stereotypical one call closer - that type of person does horrible in our business. The other type of person is someone who has run a small retail business and is tired of having a location. Interestingly, at least a third of our franchisees used to be Money Mailer customers or are affiliated with Money Mailer in some way."

Contact Information: Dennis H. Jenkins, VP Franchise Licensing, Money Mailer, djenkins@moneymailer.com , http://www.moneymailer.net/

Franchise finds profitable niche in financial services

The Interface Financial Group is a franchise that provides short-term working capital for small, growing businesses. The service is known as invoice discounting. It is a growing industry, up 75% over the last five years. Interface President, David Banfield, explains how it works. "Franchisees purchase account receivables or invoices from their clients for immediate cash. For example, the client may have made a product and sold it to a customer on net-30 day terms. On average that means they are actually going to get paid in 40 to 45 days. But the client, because his business is growing rapidly, would like to have the cash today. So the franchisee buys the invoice at a discounted price and waits the 40 or 45 days to get paid. The client gets the cash immediately and the franchisee profits from the discount when the invoice is paid."

Interface clients are typically young businesses. Banfield says, "Our clients tend to be very entrepreneurial in nature. Usually, they are in the very early stages, maybe in business one or two years. They probably have fewer than 10 employees and their sales revenue is anywhere from $400K a year to $4 million. From an industry perspective, about 20-25% of our total national portfolio would be in construction or construction related areas. The rest encompass a tremendous diversity of industries from office cleaning to advertising, temporary help agencies to companies in fiber optics. If it is business-to-business, then we are there."

Clearly, business is everywhere and Interface franchisees don't have to pound the pavement to find it. "Over 60% of all our business is the result of referrals," says Banfield. "The main referring sources are our friends in the banking industry and other professionals in the finance area such as loan officers at the bank, non-bank lenders, and CPAs." While most business owners work hard over a long period of time to build up referrals, Interface franchisees get a head start from the company. "We build a contact base for them to get started," states Banfield.

Profit from the economy, good or bad
You would think that the state of the economy might adversely affect this type of business at some point, but Banfield says that's not the case. "It affects our business, but not in a negative or a positive way. When the economy is down, the industry tends to contract. Lenders to the small business world apply the rules more stringently, thereby forcing more small businesses to go elsewhere for money because they basically get rejected. So the down economy works as a plus for us in that situation by forcing more people into a secondary market for their financing needs."

So what about an up economy? "Then what happens," says Banfield, "is a lot of entrepreneurs decide it's a good time to start that business they've been thinking about for so long. They launch out and start a business, using their own seed capital from their pension fund or second mortgage and ultimately run down to the bank to get a loan to keep things going. But the bank says 'sorry, we don't do startup funding. Go someplace else.' So in an up economy, we get another surge of business, which comes from newer companies. Now, I'm not going to say we are recession proof or economy proof, but the economy does tend to work for us regardless."

Putting money to work
The cash to buy the invoices comes directly from the franchisees. Banfield explains. "They are the providers of the cash. For many franchises there is an investment required that goes into a brick and mortar building, for the leasehold improvements and so on. With our franchise, because we are homebased, there are no such investments. But there is a working capital requirement and that working capital is the cash that is used to buy those invoices." It is a capital driven franchise designed to put money to work, not people to work. "Interface has been described as a 'lifestyle' venture," adds Benfield. "A typical franchisee will probably service only 4-6 clients and spend 20-35 hours per month actually servicing that portfolio."

As with all business transactions, there is some risk involved. But Banfield insists that the Interface methodology reduces the risk to nil. "First of all, we only do business with companies who are creditworthy. Second, we only do business on a recourse basis. This means our client contracts with us in writing that, in the event that we do not collect within a predetermined time frame, our client must buy back the invoice at 100 cents on the dollar. No matter what, we will always earn the discount," says Banfield.

It's a system that has been working for 35 years. According to Benfield, "What we did in the first transaction - the approach, the documentation, the methodology, the due diligence - they are all basically exactly as they are today."

Contact Information: David T. Banfield, President, The Interface Financial Group, (800) 387-0860, http://www.interfacefinancial.com/