FBR Franchise Business Review claims to be a respected franchise market research. A critic claims that FBR is a franchise lead generation firm that cleverly enables franchisors to circumvent the FTC prohibition against making undisclosed and unsubstantiated earnings claims.
(UnhappyFranchisee.Com) Franchise Business Review, or FBR, claims it is “the most respected source of independent franchise information, highlighting today’s top franchise opportunities — based exclusively on the ratings and reviews from thousands of franchise owners.”
We’re a little confused about how they work exactly, but Franchise Business Review apparently conducts franchisee surveys for participating franchisors.
Negative results, it seems, are never released publicly.
If the franchisee survey results have franchise marketing value, they are packaged into reports that the franchisors can use to boost their credibility or in their franchise sales efforts.
Franchise Business Review offers participating franchisors advertising and lead generation options in connection with its website and a slew of slick, glossy digital publications.
We received a complaint from an Unhappy Franchisee reader (we’ll call him FBR Critic) who sent us a copy of the 2015 Franchise Business Review Multi Unit Special Report, along with this message:
FBR claims to be a research firm. FBR is a franchise marketing lead generation website.
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They are doing with this report what the FTC and certain states do not allow.
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FBR is charging its franchisors for an unlawful earnings claim service. Franchisors mostly would never do this themselves excepting for the aggressive violators.
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Franchisors wouldn’t not even been lawfully able to provide this report to prospective franchisees. No franchise lawyer worth their salt would let their franchisor client use FBR.
FBR Critic pointed out that the FTC forbids franchisors from making Financial Performance Representations (FPRs, aka “earnings claims”) unless they have substantiation for the claims and they are disclosed in Item 19 of the franchisor’s Franchise Disclosure Document (FDD).
The 2015 Item 19 for fledgling franchisor and FBR advertiser You Move Me states “We do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets.”
However, a “Featured Franchisee” advertorial in the FBR Multi-Unit “Special Report” quotes You Move Me franchisee Andrew Wilson sharing pretty blatant financial performance representations:
What surprised you most about opening your own business?
We did close to one million dollars in sales in the first year, I couldn’t have predicted such success in such a short time. It was an incredible achievement; and indicates that the moving market is filled with opportunity.
What’s next for you and your business?
It’ll be another busy year for our You Move Me business. After doing $1.3 million in revenue in 2014, we’re projected to hit about $2 million in 2015.
For an expanded analysis of Andrew Wilson’s claims, read YOU MOVE ME Franchise Brian Scudamore Making Illegal Earnings Claims?
In the Item 19 of its 2015 FDD, FBR advertiser ShelfGenie includes representations regarding the dollar amount of the average order in 2013, the meeting-to-sales ratio and the cost-of-goods sold… but it declines to include overall profitability of its franchises.
However, ShelfGenie shares this Financial Performance Representation via the FBR Multi-Unit Franchising “Special Report”:
“I netted 20% out of my business last year,” says Ric Trahan, a ShelfGenie franchisee who owns six units in Houston and two in Austin, Texas.”
…He invested in his first ShelfGenie franchise in 2009. During his first year in business with ShelfGenie, he broke even. By the second, he was profitable….
HomeWatch Caregivers make financial representations regarding gross sales and average staff wages in its 2014 FDD, but does not provide information regarding when and if franchisees break-even.
“If you receive any other financial performance information or projections of your future income,” the FDD states, referring, one would assume, such representations as when and if franchisees reach break-even, “you should report it to the franchisor’s management by contacting Leann Reynolds…”
Yet it is Ms. Reynolds providing a Financial Performance Representation in the FBR “Special Report” on Senior Care franchises:
Leann Reynolds, president of Homewatch CareGivers, says franchisees typically break-even (revenue minus expenses and not counting owner salary or loan payments) in 6-9 months.
Synergy Homecare is another company that opted not to disclose break-even information in its 2014 FDD, but apparently was OK providing it in Franchise Business Review’s Senior Care franchising “Special Report”:
“I was able to break even within 6 months, so the wait time is not long if you launch successfully and begin to grow,” said Synergy Homecare franchisee Mitch Opalski.
About these franchisor representations in Franchise Business Review publications, FBR Critic states that they mislead readers into believing “all franchises make money, whether multi-unit or single unit.”
FBR Critic states:
This is an unlawful way to make a earnings claim.
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This may rise to be criminal conspiracy.
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These are franchisors and franchise marketers who know franchise compliance and who are collaborating to violate the law.
What do you think? Is Franchise Business Review and its franchisor advertisers collaborating to circumvent the FTC Franchise Rule? Or are these statements not, in fact, illegal earnings claims?
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TAGS: Franchise Business Review, FBR, FBR Top Franchises, Eric Stites, You Move Me franchise, ShelfGenie franchise, Shelf Genie franchise, Homewatch CareGivers franchise, Leann Reynolds, Synergy Homecare franchise, franchise complaints, unhappy franchisee
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View Comments
When is a franchise owner's written testimonial of profitability and sales promoted and distributed by the franchisor an illegal earnings claim?
Sorry for the trick question.
Answer is. Always.
So why can't franchises use these testimonials from franchisees (they sound great from profit standpoint) to market?
Guester:
They CAN use them as long as the claims are disclosed in Item 19 of their Franchise Disclosure Document (FDD). The FTC requires franchisors to have a reasonable basis for the claims and include disclaimers. We checked the FDDs of these franchisors and they chose not to include Financial Performance Representations of the type given here so they can't use them in their marketing.
A franchisee can share their information with prospective franchisees, but it's our understanding that if the claim is made in the context of a franchise marketing piece or even in an article reprint provided by the franchisor, it's the same as if the franchisor is making it directly.
Check out today's post on Andrew Wilson's claim that he made $1.3M in his first year as a start-up franchisee:
https://unhappyfranchisee.mystagingwebsite.com/you-move-me-franchise-illegal-earnings-claims/
It looks like what was represented as a 1st year start-up may actually have been a conversion of a highly successful established moving company. If that's true, it would be quite deceptive to tell franchisees that those results came from a new franchisee without moving experience in a brand new market.
Admin -
Thank you for explaining franchise earnings claims. Cuz when you looking at buying a franchise you want to know how much others are making before pulling the trigger. You want evidence that you are going to make money.
My name is Jeff Johnson, and I am the founder and CEO of the Franchise Research Institute, a research company created in 2002, which is the original auditor of franchisee opinions. I have never actually visited (or posted on) this website before, but am doing so because I received an email notification alerting me to the mention of my name in the above comments.
Because of this, I feel compelled to publicly clarify a few points:
1. I have NEVER posted or published anonymous content or commentary on this or any other digital or print forum.
2. My company is a research firm devoted exclusively to the realm of franchising, using scientific methodology which is based upon complete confidentiality for respondents, contacting EVERY franchisee (including sold, but not open), and high response rates. The origins and specifics of our methodology are published on our website: http://www.FranchiseResearchInstitute.com. To the best of my knowledge, we are the only entity conducting franchisee research using openly published, strict, science-based research methods. Our research instrument is known as the FranSurvey®.
3. We recognize outstanding research scores with World-Class Franchise® certification. In contrast with the many "best of" lists in franchising and publishing, I can guarantee that our certification cannot be "bought;" all those certified must meet our strict, research-based criteria.
4. My company is in the business of research and the recognition of excellence in franchising. We do NOT sell leads or advertising.
5. The companies which have qualified for World-Class Franchises represent a broad range of industries and investment levels. This list includes Arby's, FASTSIGNS, Auntie Anne's, Express Employment and Mosquito Squad. These companies (and the others listed on our http://www.WorldClassFranchise.com site) have rightfully earned certification through the broad-based, enthusiastic endorsement of their franchisees, as documented by our unbiased, third-party validation research.
6. We do NOT make any Financial Performance Representations!
I welcome anyone who has questions or comments about our company and its work to contact me by phone: 800.410.5205 or email: [redacted]
Thank you Mr. Johnson for your comments. It seems you are not doing marketing and franchise lead generation whereas Eric Stites and Franchise Business Review is and with earnings claims.
There is another earnings-claim related issue with Franchise Business Review, which is their representations about the earnings of types of franchisees, such as Senior Care franchisees and Multi-unit Franchisees. In the 1990s the FTC came down on Blenheim Group for issuing misleading franchise earnings statistics. I think this could be a big problem for FBR if the FTC takes a good look at it.
Who will submit these violations to the FTC for review and enforcement?
The head of franchise investigations for the FTC reads and is a fan of UnhappyFranchisee.Com. When I finish the upcoming post on the general earnings claims by FBR, in which they post sales numbers for, say, Senior Care franchisees adjacent to paragraphs about their Senior Care clients (who haven't filed an Item 19) implying that they'll achieve those results, perhaps some of our readers might send the link to the FTC. The FTC issued a consent against a trade show producer for using similar tactics back in the 1990s.
Have you received a response from Eric Stites and Michelle Rowan at Franchise Business Review yet?
Not a word.
Can anyone clarify something for me? FBR states:
"At times we use the term 'benchmark' within the report, which refers to the aggregate data we obtained by surveying approximately 28,500 franchisees representing 350 brands."
When they say they "surveyed" 28,500 franchisees, does that mean they sent 28,500 surveys out or that they received 28,500 responses?
I wouldn't trust Eric Stites or Michelle Rowan on any of Franchise Business Review's claims or data methodology.
Eric and Michelle have both been educated on franchise sales legal compliance since the have earned the International Franchise Association's Certified Franchise Executive (CFE) designation.
We want answers and we want them now.