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We asked Tim Courtney, Vice President of Franchise Development at PuroClean, about how his company works with franchise brokers. We’ll have more coverage on the role of brokers and third-party consultants in frandev in future issues.
Saving money (potentially) on lead generation and delivering a “pre-qualified” lead to the franchisor. This can help reduce headcount costs for the franchisor for the number of staff needed to develop and convert franchise candidates. I think broker groups are a “necessary evil” in development, as long as you use a deal ratio you are comfortable with. For example, we used to be over 60% broker usage and were down to 15% as of 2022.
To succeed, franchisors must pay a competitive “success fee” and participate in networking events such as conventions or annual meetings. Some even charge a listing or shelving fee.
Good question… I don’t know.
Ha! To me, it feels like pay-to-play is the only way to gain good traction! You have multiple territories to sell, or can have a “broker’s” candidate buy multiple territories at one time. I feel if you are a single-unit seller it’s harder to get consistent lead flow.
Although we have closed some candidates in record time from these groups, the average I am seeing is the same or even longer than our average time to deal. I believe that because candidates are shown multiple concepts (both competitors and different industries) their evaluation process takes longer.
Ultimately, we decide the “success fee” we want to pay these groups. You want to be competitive with this fee compared with your competitors. I certainly believe this can affect whether or not you get shown to a candidate. If we were paying $10,000 to $15,000 less than a competitor, I bet we wouldn’t be shown at all, even as a very successful brand. I feel the new “shiny object” franchisor, with multiple territories for sale (3-pack, 5-pack, 7-pack, and even 9-packs), and with “success fees” paid on all of that, will remain on the top of anyone’s “show-list” ahead of an established brand.
Royalties, no; maybe an FSO would do this. Equity in the business, also no; maybe an FSO would do this.
Each group has a handful of good brokers/consultants and will “Frick and Frack” with the sales team to help close the candidate. Maybe 20% vet properly and provide financial capability! The rest pass along the lead information like throwing darts at a dartboard. They send many territory checks, and some pre-register the lead... without any pertinent lead information. This way if the candidate purchases the franchise, they can come to collect their “success” fee. We have banned this practice!
We treat it as if we generated the lead ourselves, minus any triggered email campaigns, automated texting, and funding discussions. This is usually discussed with the broker (they get referral fees from this). It is basically the same process.
No.
Yes, we work with every broker group in some capacity. It helps load balancing of the leads.
That varies from year to year. We maintain a few relationships, but we lose some and we gain some.
They have access to every franchisor that is a member of that group. I know some brokers pick three brands they like per industry category, but in essence they can recommend any in the group’s portfolio.
As far as I know, brokers are not responsible for the success or failure of any franchisee.