Should You Use Franchise Brokers?

Are Brokers Right for You?

From a franchisor's perspective, brokers offer some significant advantages. Perhaps at the top of the list is the variable-cost nature of the brokerage process. Since franchisors don't pay until they make a franchise sale, they can receive comfort in the pay-for-performance nature of the relationship. Moreover, unlike traditional advertising, they don't have to pay these fees until after they have generated the franchise fee that allows them to pay.

Additionally, the franchisor receives a significant benefit in that each broker lead comes to them prequalified. These prospects take significantly less time and effort in the franchise sales process. And, given the combination of the "third party endorsement" provided by a broker and the prequalification that has been done, broker leads close at a significantly higher close rate than virtually any other type of lead. Franchisors who work closely with brokers continue to work with them throughout the sales process--using them to obtain feedback from the prospect and to guide them more effectively through the sales process.

That said, brokers are not without their disadvantages.

First and foremost on the list of disadvantages is the fact that brokers aren't directly controlled by the franchisor. But at the same time, they can make representations that may subsequently expose the franchisor to liability, claims of fraud or potential franchisee ill will. With this in mind, the prudent franchisor makes it their responsibility to monitor how the brokerage network is representing them, provide the broker network with ongoing training and feedback and ensure that their franchisees are fully informed about the franchise from the franchisor's perspective.

Brokerage networks don't provide a magic pill for lead generation. They take work. Franchisors who rely heavily on brokers often attend or sponsor conventions for each brokerage network and develop formal communications plans to keep their concepts "top of mind" within their broker networks.

While brokerage leads do require more work, brokerage fees are significantly more expensive--averaging 1.5 to 2 times more than an internally generated lead.

And, of course, brokers don't substitute for an internal sales force. Once the lead is generated, the franchisor remains responsible for the franchise sales process. And in most cases, that means paying a sales commission to the franchise salesperson--over and above the brokerage fees generated by that sale.

Finally, being represented by a broker (or several--they generally don't require exclusivity) is not a guarantee of franchise sales success or even of increased lead flow. Sometimes, as the new franchisor on the block, you may find yourself with little brokerage action and perhaps some significant expenses to show for it.

The bottom line: Brokerage firms can be a tremendous boon for some franchisors, but that they should be viewed as a means of supplementing franchise sales activity, not as the exclusive mechanism for generating franchise leads.

In making a decision on the use of brokers, the factors that should enter into your decision-making process should include the aggressiveness of your franchise sales goals, the size of your marketing budget, desired geographic coverage and your willingness to monitor the brokerage network with care. As with most business decisions, there isn't one right answer. While brokers can drive huge levels of franchise sales for some organizations, they aren't right for everyone.

If brokers are a good fit for your franchise, select your brokerage network (or networks) with the same care that you would use in selecting your franchise sales force. Do so, and you may be well rewarded. Fail to do so, and you do it at your own peril.

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Mark Siebert is the CEO of the iFranchise Group, a franchise consulting firm that has worked with 98 of the nation's top 200 franchisors. He can be reached at 708-957-2300 or at
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