23 Jan An Opportunity for Franchise Brokers
There are opportunities for franchise brokers to work with start-up franchisors. However, for various reasons it appears that few brokers or broker groups take advantage of this potential market.
Businesses that start a new franchise face their most difficult challenge when launching the new franchise program. As I explained in a companion piece entitled Overcoming the Biggest Challenge New Franchisors Face, recruiting and “closing” qualified franchise prospects can be a daunting task for a new franchisor.
Despite the advice of many franchise consultants, who suggest that business owners have a minimum amount of capital before franchising, many start-up franchisors and certain franchise consultants fail to heed this advice. The result is that some start-up franchise companies lack not only the financial capital necessary to fund growth but the franchising experience as well. This doesn’t negate the fact that many start-up franchisors have sound franchise programs that represent an opportunity for qualified franchisees. I did a study last year and found that there were 265 franchisors that had been in business more than 2 years and these franchisors had less than 5 franchisees. Therefore, the opportunity isn’t limited to those franchisors that just started up but also those who can’t seem to grow their network.
Because a start-up franchisor lacks a track record and few if any franchisees, the major franchise broker groups, with few exceptions, will not represent these franchisors. There are companies that will handle the entire franchise development process; however, the price for this outsourcing service can include equity in the new franchise entity, commissions on each franchise fee and a share of future royalties. In my experience I’ve found many start-up franchisors consider this a steep price to pay.
What certain start-up franchisors need is a franchise broker who can process leads generated by the franchisor and work these leads to close at a cost that is reasonable and acceptable to the franchisor. Some new franchisors fear that the leads they pay for through ad portals and other sources may be recycled or converted by the broker to another franchise opportunity. This is not to say this will happen but it’s a concern. The other issue is the broker commission, which whether valid or not, can appear to be overly excessive to the new franchisor. On the other hand, some franchisors look to hire a franchise salesperson on a commission only basis, an approach I don’t advocate.
Suggestions for a broker program for start-ups
- Thoroughly vet the franchise to make sure the program is sound and adequate support is available. In other words, be comfortable representing the franchise.
- Construct a program for the new franchisor including advice on generating leads, etc. and offer a menu of services you can provide.
- Design a commission schedule with both flexibility and incentives, including a graduated commission scale. The commission can be based upon the services being provided.
- Have various programs that range from providing qualified leads to the franchisor to working franchisor leads from beginning to end.
- Suggest a process for dealing with leads that don’t work. Perhaps the franchisor could get a rebate per lead or a referral fee if the lead purchases another franchise. The main issue will be how to track these leads if they are recycled.
What many new franchisors need but can’t afford is a franchise sales person. In these situations be creative in finding a way to fulfill this need. This may require flexibility on the part of the franchisor as well as the franchise broker.
