Selling Franchises On eBay

Long-Term Effects

What effects might selling franchises on the Internet have on the sale of franchises in the future?

Kaufmann: The sale of franchises over the Internet, as opposed to auctioning them off on eBay, is a legitimate activity that's having a profound impact on the franchise sales process to the benefit of both franchisors and franchisees. Franchisees, with a few clicks of the mouse, can obtain a plethora of information that before could only be obtained by flying to various franchise trade shows, stopping at an endless number of booths and conferring with salespeople.

For franchisors, the advantages of offering franchises over the Web are many. First, it eliminates the time, expense and often-fruitless efforts of paying for print advertising and then flying around the country to appear at countless franchise trade shows. Through the Web, franchisors can now post their franchise marketing materials online.

Moreover, through electronic franchise application forms, franchisors can weed out, at virtually no expense, franchisee prospects who aren't suited for the chain. In addition, by enabling franchisors to immediately and electronically disseminate their franchise disclosure documents over the Internet, presumably [it will make it easier for] prospective franchisees to undertake investigative effort before applying for franchises.

Full and thorough disclosure upfront, which is particularly accelerated by the Internet, leads to fewer pipe dreams and fewer unrealistic expectations down the line, such that subsequent conflicts, which so often arise out of unrealistic franchisee expectations, can be avoided to the benefit of both the franchisor and its franchisees.

Purvin: A franchise is not a commodity that can be placed on an auction block. In most instances, the franchise fee is a small part of the cost of starting a business. Selling a franchise by auction or on the Internet is quite simply not in the best interests of any franchisor or franchisee.

Could this impact the selling price of franchises?

Kaufmann: Perhaps for smaller or start-up franchisors, much of whose initial budgets are devoted to the franchise marketing process. Given the reduced costs of marketing franchises over the Internet vs. the traditional method of attending trade shows nationwide, perhaps these smaller or start-up franchisors can make their offerings more attractive by concomitantly reducing their initial franchise fees. For larger franchisors, the franchise marketing budget is so relatively minuscule to their overall operating budgets that I don't see the cost savings associated with offering franchises over the Internet as having any profound effect, or any effect at all, on those initial franchise fees.

Purvin: Traditionally the price of a franchise is driven by the cost of qualifying and training prospective franchise owners. Internet sales will not appreciably affect these costs.

Would the level of franchisees be affected?

Kaufmann: An Internet-driven franchise sales process will enable franchisors to quickly weed out unqualified prospects-those who have insufficient funds, insufficient experience or education, or the wrong attitude. Through the use of an electronic application form, this weeding-out process can be vastly accelerated, saving the franchisor much time, effort and money. Given the vast population of prospective franchisees yielded by the Internet and their ability to investigate the investment in great detail from the comfort of their homes, I predict the Internet will give rise to more and better franchisee prospects at vastly lower cost.

Purvin: Quality, ethical franchisors will still thoroughly screen and train their franchisee prospects. Those franchisors would never consider blindly selling a franchise on the Internet. Fraudulent opportunities, on the other hand, wouldn't care [potential franchisees] found their franchises, so long as their franchisee checks clear the bank.

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