What Franchisors Should Know about Working with FSOs

One of the ongoing goals and primary challenges for franchisors is to continually grow their brands and add quality franchisees to their systems. This is an expensive and time-consuming process, and virtually all franchisors use third-party sellers to drive qualified leads.

Many franchisors work with franchise brokers to secure leads. They also work with franchise sales organizations (FSOs) to increase their sales. A FSO is a company that provides franchisors with franchise sales and growth support services.

As many franchise development teams utilize several third-party services to generate leads, there can be confusion about the two groups and their respective roles. While franchise brokers and FSOs have the common goal of pursuing leads and sealing deals, there are some important differences between the two.

Brokers are high-quality lead providers who often act as headhunters in bringing franchisors prospects who are the best fit for the brand. They serve as an intermediary between a qualified candidate and franchise brand, and greatly reduce the amount of time franchisors need to invest in the vetting process. Working with brokers can be quite costly, as their services can include commissions ranging 40-50 percent after the prospect signs a contract.

FSOs can be considered an extension of the franchise brand, executing a significant part of the mutual evaluation process with a franchisee. This enables the franchisor to focus on other areas of operations, such as growing the business and keeping franchisees profitable and happy. The cost of using a FSO varies based on the scope and complexity of the services they provide. Traditional FSOs typically charge a monthly retainer and a commission on the sale of a franchise agreement.

When using FSOs, the responsibility of closing a lead and turning it into a signed agreement is with the franchisor. The FSO does a lot of the heavy lifting and communicating the sales process with the prospect before the brand's franchise development team approves and finalizes the deal.

“FSOs generally are not franchise brokers, and they are not lead generators,” says Michael Peterson, president and founder of Franchise Beacon. “We are not in any way going to bring you people to buy a franchise. You, as a franchisor, are going to somehow generate those leads. We may manage that process for you, but you are writing the checks and making the decision. If you are looking for someone to help you generate leads, you need to go with a broker. It’s the one thing I think people really miss—there’s literally no overlap between us and a franchise broker.”

FSOs usually offer growth-oriented professional support geared toward helping franchisors scale their franchise systems and improve franchise sales. Although the services vary, they can include franchise sales strategies, performance-based marketing, and working directly with brokers on behalf of the brand.

While there are many benefits in working with a FSO, those companies are not always the right fit for every franchisor. Some FSOs may focus on broker engagement and deals while others work more on organic lead generation. Franchises must determine whether a FSO's strategies align with their brand's needs. Franchises that are relatively new or a startup brand, or have few franchisees, may determine it is too soon to work with a FSO. Ultimately, a franchisor must conduct their due diligence and decide if working with a FSO is the best fit for growing their business.

The full article about what franchisors should know about third-party sellers can be found in Issue 3 of 2023 Franchise Update Magazine HERE.