An Opportunity for Franchise Brokers
by Ed Teixeira
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 ďclosingĒ 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
doesnít 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 isnít limited to those franchisors that just started up but also
those who canít 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 Iíve 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 itís 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 donít 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
- 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 donít 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 canít 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
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at