Franchise Sales: In-House, Brokers, or Both?

When franchises are in a growth period and looking to expand their footprint, they rely on a qualified salesperson or sales team to romance potential franchisees and guide them through the application, vetting, and closing processes.

Franchisors can choose to hire an in-house chief development officer (CDO) or equivalent, who acts as the brand’s salesperson, or they can outsource this role to a third party that specializes in franchise sales and development.

With an internal hire, the frandev is exclusive to your brand, notes Doug Kushell, president of Franchise Search, a recruitment agency that helps franchisors hire qualified talent for various positions including CDOs. You have their full-time commitment and do not have to worry about any conflicts of interest.

This is also the more budget-friendly of the two routes. Because you pay an internal salesperson a base salary and benefits, their commission rate for each closed deal will be lower than the cut a third-party broker would be due.

“Most brands are not really equipped out of the gate to develop their own sales and development team internally,” says Debra Koerner, chief marketing officer for ColorOnly Express Salons and a franchise business consultant. “There’s this very specific process when you’re selling a franchise that the Federal Trade Commission mandates has to happen for a buyer. If the brand decides to do it internally, they have to make sure that they have a team that’s managing all of that and following all the guidelines.”

ColorOnly, a salon that specializes in express hair-dying services done in as few as 10 minutes, is an emerging franchise that is currently in the vetting process with several potential franchisees who have expressed interest in opening the first franchise locations. The first corporate location opened in March 2020 in Coral Springs, Florida, with a second set to open in West Palm Beach in January inside a Walmart Supercenter.

To help generate leads, the salon enlisted the help of two broker networks, International Franchise Professionals Group (IFPG) and FranServe.

“They do the early vetting, qualify, and work them through the sales process before they bring them to the brand for final approval,” says Koerner. “That’s usually the easier route, but it’s also very expensive because a lot of times you might be paying a broker or consultant $25,000 to $30,000 for each unit sold.”

These broker groups are the matchmaking agencies of the franchise industry. Brokers have a large network of investors and entrepreneurs who have expressed interest in buying into franchising. They have a profile for each of these potential franchisees that includes what category of business they are passionate about, such as beauty, fitness, pet care, automotive, the region they are interested in opening a business in, and what startup costs they can afford.

Koerner says a broker network could potentially have 300 brands in its portfolio. To make a love connection between a brand and a franchisee prospect, a broker filters the results based on the criteria each party has stipulated. When there’s a match, the broker reaches out to the potential buyer to tell them about the brand to see if they have an interest in learning more, applying, and going through the vetting process.

Not an either/or proposition

Brands do not have to choose between having an internal salesperson and using a broker. Franchisors can use both. For example, while ColorOnly is signed with two broker networks, the brand also takes its own sales initiatives and have a website page dedicated to organic franchise lead generation. If a potential franchisee learns about the business by going to its website as a customer, seeing it at a franchise conference, or hearing or reading about it, they can fill out a form on the website and the inquiry goes directly to ColorOnly’s corporate office. If that inquiry were to turn into a closed deal, ColorOnly would not have to pay a brokerage a commission.

It’s not either/or. Brands are free to dip their toes in both pools in an effort to maximize franchise sales growth.

Paige Feigenbaum is a freelance journalist, PR specialist, and TV producer in South Florida. She has written for The Palm Beach Post, Jupiter Magazine, Stuart Magazine, The Boca Raton Observer, Entertainment Tonight, Access Hollywood, The Hollywood Reporter, TMZ, ABC News Radio, and Smart Meetings magazine. She can be reached at paigemara.news@gmail.com or on LinkedIn.