In the franchise space you will come across a variety of different terms and it can get very confusing very fast. Before you know it, your head is spinning and now you are even more confused than when you started. One of these terms is “franchise broker”. So who are they and what do they do? Let’s answer that question.
Definition of a Franchise Broker
First off let’s provide simple definition of a franchise broker. A franchise broker is someone who presents themselves as a franchise business consultant and some even call themselves franchise consultants (learn more about who are franchise consulting companies), don’t be confused by their title. Bottom line is that a franchise broker is someone who collects a fee (commission) from a franchisor for introducing the franchise prospect to them. Franchise brokers usually have a book of franchise concepts and have been authorized by franchising companies to allow them to represent their franchise opportunity. Some even have websites featuring all the concepts they represent and on top of the commission they receive, charge franchising companies a fee to display their concept on the website. The franchise broker makes a commission each time someone purchases the franchise they represent. Typically, franchise brokers they command 40%-60% of the franchising company’s franchise fee and represent their services as free to the prospective franchise buyer. Some do no more than pass the prospective buyers contact information to the franchising company then expect a hefty commission and others do a thorough screening to make sure the prospective franchise buyer is a good match for the franchising company. There are some very good franchise brokers out there and on the other had there are some horrible ones.
One of the problems that is prevalent within the franchise industry is misleading franchise sales practices (take a look at “Franchise Legal Problems Due to Sales Misrepresentations“). And unfortunately, franchise brokers are at the heart of this issue. One of biggest problems is that when a person reaches out to talk with someone about buying a franchise, the franchise broker does NOT disclose themselves as an independent broker or a broker that is part of a network of brokers. Nope, instead they present themselves to a prospect as representing the franchise company leading the prospect to believe that they actually work in the franchising company. When in reality the broker has never worked in the business, yet alone step foot into it. Maybe the franchise broker does not want the prospect to know they are making a commission if they are successful at convincing the person to buy the franchise? Not being honest from the beginning can be quite deceiving. Perhaps if franchisors demanded that if franchise brokers who help sell their brand immediately disclose to the prospect, in the very first interaction, who they are this would put a stop to these deceptive practices.
Why Use a Franchise Broker
The whole idea of paying such a high commission to a franchise broker is because that person is generating ALL the franchise lead activity. That means they spend their own money to advertise the franchise concept to generate lead activity, screen each lead and convert the leads into serious buyers. So if it turns out the lead is no longer interested in the initial franchise concept, the franchise broker will re-direct that person to another franchise in their portfolio of franchise opportunities. With that said it seems kind of silly to provide the franchise broker with leads the franchising company generates on their own because of that lead is no longer interested in your franchise concept, the broker will turn them onto another franchise they represent, perhaps your competitor!
Yet we constantly hear that there are some franchise brokers who will only work with a franchising company if that company provides them with all of the leads. And also asking the franchising company to share the advertising expenses. It is any franchise broker’s dream to have an exclusive relationship with a franchising company. If a franchising company decides to get into that type of relationship, then we encourage them to track results. If after two months there are no measurable results, redefine the relationship with the franchise broker as defined above. Just be careful, it is hard to survive as a franchise broker as there is tremendous turnover in the industry. Some will do just about anything to generate income.
Using Different Titles
Over the years franchise brokers do not like to be referred to as such so they have thrown some new titles into the mix. These terms have gotten confusing. For example, you will find the terms: franchise advisor, franchise consultant, franchise coach, franchise marketing expert and even franchise marketing specialist out there and all these terms are all interchangeable (learn the different titles between a franchise advisor, consultant and broker). Perhaps the idea of using a different title does not have a negative connotation as the word broker? Perhaps hiding from the public that they are a broker takes away from the image they portray in that they have a genuine interest in the person they are working with to help find a franchise rather than just there to collect a fee and broker the deal? Who knows, but regardless if the person is accepting any type of compensation for their part in helping with franchise sales, by legal definition it is a franchise broker. In fact, franchisors are required to report who they use as franchise brokers (referred to by state agencies as franchise salespersons).
Get this some of them are even dubbing themselves as experts in franchise development and calling themselves franchise developers (see this article “Franchise Development Services Let’s Clear the Smoke“). It is like asking a car salesman to build you a car. Just because they have been around cars for years does not make them qualified to build one. Now that’s scary as hell!
- Don’t Make a Deal with the Devil When Franchising Your Business
- Don’t Need Brokers You Can Market and Sell Franchises Yourself
- Making a Franchise and Franchise Sales Do Not Go Together
- Franchising Companies That Claim to Do it All
- How to Franchise My Business
- Franchise Your Restaurant
