Q: I contacted a franchisor through information I got off its listing on a Web site and was surprised to find out that the person who returned my call was not the franchisor, but a sales broker. The broker seemed very knowledgeable and said he wanted to work with me to buy a franchise. Do most franchisors use sales brokers? Should I continue to work with the broker, or should I contact the franchisor directly?
A: The Web has increased the opportunity for people to find out about franchising. Franchisors have published Web sites that contain details about their company's products and services, information about their franchise opportunities and existing locations, applications to apply to purchase franchises and e-mail addresses for you to communicate directly with franchisors.
Referral sites, on the other hand, are the modern version of newspaper and magazine advertising. Franchisors pay to advertise on those sites, enabling customers to learn more about them than they could in a print ad and at a lower cost. Referral sites provide a wealth of information on franchising and let you explore specific franchisors at your leisure, without having to deal with any franchise salespeople until you're ready.
While they may appear to be the same, however, not all third-party franchise information sites are referral sites. Many are operated by franchise brokers. For new franchisees, the difference can be critical.
The primary source of income for referral sites is advertising revenue from the franchisor. But franchisors typically don't pay for listings on broker sites. Instead, the primary source of revenue for broker sites is the commission they receive when they sell you a franchise. Until brokers can convince you to purchase a franchise from one of their clients, they don't earn any money.
For brokers, your signing on the dotted line of the franchise agreement can mean a sizable fee based on a percentage of the upfront cost and often the continuing royalty payments you make to their franchisor clients.
Using a franchise broker isn't the same as using a broker when you buy your home. Most experienced homebuyers know the real estate broker works for the home seller. The difference between selling a franchise and selling a home is there's no multiple listing service for franchisors. In a multiple listing for houses, most if not all houses available in the neighborhood are listed. Except for the few houses that aren't listed or are being sold privately, the home buyer gets the opportunity to learn about every house in the market they can afford or that meets their needs. Franchise brokers, on the other hand, only offer their clients' franchises. Therefore, while thousands of franchises are available and hundreds of those may fit your pocketbook and your interests, the broker only shows you a very small percentage of them.
Considering few franchisors use a broker, most brokers represent a fraction of available opportunities. And different brokers have different clients, further limiting your options, even if you use multiple brokers in your search.