How Floor Coverings International Uses Brokers

We asked Tom Wood, CEO of Floor Coverings International, 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.

What are a franchisor’s greatest benefits from using brokers?

• Lead generation: In our case they introduce candidates to our brand where they may have never thought about the flooring industry. 
• Candidate qualifications: They also help filter out candidates who aren’t a good fit, and have already introduced candidates to the benefits of franchising.

What challenges should franchisors be aware of when working with brokers?

• The cost of the placement fee
• Having the resources to spend ti.me helping brokers understand the benefits of your brand.
• It is not a “magic fix.”

Brokers should disclose all fees they collect. Do they? Yes and no. We only know what we pay to be in the network and the broker referral fee. We do not know the structure of how they pay their brokers.

What ranges do you pay for the following items?

• Success fee based on franchise fee: $30,000 to $75,000 ($30K for the first placement, $25K for the second, $20K for the third; brokers can sell a 1/2/3 pack).
• Marketing fees to the broker: None.
• Marketing dollars spent driving leads to the broker: $1,000 to $100,000 annually.
• Membership fee to the broker (or cost to be represented by the broker): $1,000 to $100,000 annually. Yes, we now pay a $100,000 fee to a broker network for a premium placement.
• What other fees and/or compensation do you pay to a broker for services rendered? Some networks require attendance at their conference. The cost ranges from $5,000 to $10,000.

When you are signing with a broker system do you let them know your expectation in number of leads for the following 12 months? No. We have to work hard to prove ourselves and fight for every lead.

Do leads from brokers take longer to close than leads from other sources or is it the same or shorter? Faster. We like to say they are already on the 50-yard line when they come to us. The time frame is cut nearly in half.

Who decides the success fee you will pay a broker? Is it a common practice that franchisors who pay higher fees will get preferential treatment on leads delivered? The executive team decided on the fee to our brokers. Yes, you will get preferential treatment on leads with the higher fees, but you have to follow up with the systems to continue to get the referrals.

Are royalties or equity in the business suggested or required by broker companies you work with? Royalties yes. Equity in the business, no.

Do you have any comments on why a franchisor would or should not engage in this royalty or equity share practice. Royalties are needed for support services. I would never agree to a royalty share with a broker network. However, I will work to find the placement fee required to accomplish the same thing.

How far does the broker bring the lead when the lead is delivered to you? 1) Vetting: They make sure they would be considered a fit for our brand. 2) Financial capability: They ask about financials but do not require the candidate to prove them. 3) Location they are interested in: They send territory checks to see if we have open territory.

From the time you receive the lead, what is your ongoing process to close the deal? Our franchise process is as follows:

Introductory conversation

Executive model deep dive

FDD

Marketing and technology

Validation and assessment (Caliper test)

Operations team interview and application

Discovery day

Signing and celebration

Do you see any difference in the opening rates and success rates of franchisees who originated with brokers versus those who came from other lead sources? No, the results are exactly the same for franchisee opening rates and franchisee success rates (still open 1 year after opening and 5 years after opening).

Do you have personnel dedicated to working with broker leads? If yes, why? Yes, we have a director of broker success who works with the networks to generate leads. All of our franchise developers work with broker leads.

How many individual brokers (not broker systems) do you work with? More than 700.

How many franchisors are represented by an individual broker from a broker organization? It varies. But typically, a candidate is presented with three franchisors at a time to choose from,

How does the broker/franchisor relationship work? What liability or responsibility does the broker carry for franchisee success if any? The broker has no responsibility for franchisee success after signing. The franchisee is responsible for their success with the support of the franchisor.

Please list all the broker networks you have worked with or know about.

IFPG

The Entrepreneur’s Source

FranNet

FranServe

FranChoice

Franchise Brokers Association

The Franchise Consulting Company

Transworld Business Advisors

BAI

MatchPoint

The Perfect Franchise

Success Franchise Advisors

Franchise Sidekick