When it comes to franchise lead generation, few methods are as effective--or as controversial--as the use of franchise brokers. Used sparingly by franchisors less than a decade ago, franchise brokerage networks are today used by nearly half of all active franchisors and, by some estimates, account for as much as 10 percent of franchise sales.
So what has accounted for this dramatic rise in the use of franchise brokers? How do they work? And are brokerage firms right for your franchise organization?
The Internet Information Glut
What has accounted for this dramatic rise in brokerage activity within franchising? In a word: the internet.
A decade ago, at the dawn of the modern internet, franchise buyers had limited access to information about the franchise universe. Prospective buyers had to do their research by looking through franchise directories, magazines and newspapers, and perhaps going to franchise or industry trade shows. But even the most daunting trade shows would have perhaps 200 franchisors to choose from, and most magazines would have fewer still. And while directories might have over 1,000 franchisors listed, the availability of information about these franchisors was severely limited.
Enter the internet. Today, there are nearly 3,000 active franchisors listed on the internet. Google "franchise opportunities," and you'll find a staggering 5 million pages that have been indexed. If prospective franchise buyers wanted to spend a minute looking at each of these pages, and they clicked away 24 hours a day, 365 days a year, it would take them nearly 10 years to do so.
Clearly, this information overload has made it impossible for many people to effectively sort through the choices in the franchise universe--paving the way at the franchise buyer level for a trusted intermediary who will help them through the morass.
At the same time, franchisors are finding it more and more difficult--and expensive--to obtain qualified leads. Increasingly, the internet is commanding the lion's share of their franchise marketing budgets, as franchise buyers turn to the internet first when doing their research. And since 90 percent of internet searches will extend only three pages deep, franchisors cannot rely on organic search optimization alone to get their message to the franchise buying public.
But the proliferation of franchise advertising portals--last count we had identified more than 70 of them--combined with increases in the costs of pay-per-click advertising (as prices continue to be bid up) have made it very expensive for new franchisors to advertise effectively across the internet.
Brokers, however, who may represent a hundred or more franchisors, have a real advantage when it comes to lead generation. While the typical franchisor has only one thing to sell to a franchise prospect, the broker has a virtual warehouse of opportunities. And by allocating their advertising costs across that warehouse, they can generate leads much more cost effectively.
This convergence of advertising economies and franchise buyer confusion has created the conditions responsible for the explosive growth of franchise brokers.