Are there too few cooks in your kitchen without franchise brokers?
Illustration by Jonathan Hankin
On more than one occasion I have heard from clients who simply refuse to work with franchise brokers on the grounds that they are just too expensive. And with average commissions that can easily double the organic cost of lead generation, one can certainly understand their reasoning. But perhaps there is more to this story.
In some respects, franchise marketing can be likened to a gourmet commercial kitchen, where the executive chef receives the accolades. While in some instances the executive chef might be able to do it all, sometimes the meal would not get made if it were not for the work of the sous chef handling, preparing and making sure the kitchen runs like a well-oiled machine.
Like the sous chef, a franchise broker can act as an additional member of the team who can increase capacity by handling and preparing candidates so the franchisor can focus only on closing the deal. And if they are shopping for their ingredients at a different market, the franchisees they bring to the table will truly be incremental.
Broadening the menu
Franchise brokers (who often like to call themselves “franchise consultants” for marketing purposes), with very few exceptions, should never be a franchisor’s exclusive franchise marketing strategy. Aside from their cost, it is simply difficult for most franchisors to get the broad-based interest of enough brokers to count on them to drive substantial growth, and it is almost impossible to use brokers strategically to target specific geographic markets.
For some franchisors, broker groups are unlikely to attract significant numbers of their targeted franchisees. If you are looking to sell hotel franchises to investment funds or an area development franchise to a multi-unit foodservice operator, there may be better places to spend your time and effort.
But for many franchised businesses, broker candidates represent an entirely new source of lead flow that would be otherwise untapped.
Brokers are often generating their leads using different mechanisms than franchisors use in local markets—promoting their overall knowledge of franchising and their ability to steer candidates through the maze of thousands of franchises, perhaps using seminars and networking events. And even if they are using the same lead sources, the odds of a broker introducing you to a lead that you would have found anyway are incredibly small.
Moreover, broker leads should save you time and effort. Remember, brokers have their own marketing funnels and each has spent time and effort reducing their pot of candidates to only those few that they feel will be a fit for you.
Because broker leads will be pre-qualified, you should expect that they will have significantly higher closing rates and will take substantially less time to close. And the broker can provide you a back-channel into the sales process that can be incredibly valuable.
So, while the cost of paying a broker is high, it is important to remember that sale you are provided is truly incremental. And while you may lose money on the initial transaction, as a franchisor, hopefully, you are in the business to make money based on your long-term relationship with your successful franchisees—not just to profit from the franchise fee.
And finally, since you do not pay the broker until after the deal is done (as opposed to rolling your dice on a marketing strategy and hoping for the best), it makes the entire experience much more palatable.
Going to the market
Of course, the brokerage commission is just the start (or rather the end) of the expenses you will have in working with the brokerage community.
If you are going to use brokers, you hope the network (or networks, since brokers are not exclusive) you use will become so familiar with your brand that they begin seeing your potential franchisees around every corner. It will be up to you to be sure your brokers have the information they need to provide you with a good match and to provide them with enough information that they will be enthusiastic about your brand.
Brokers are only as good as you make them. Make sure your membership profile on the broker group website is up to date and chock full of information. If you want to get their attention, you will need to participate in broker shows and introduce yourself and your brand. Provide them with fliers or Item 19 graphics. Create presentations and participate in webinars for broker groups. Invite them to discovery days.
All of this takes work. And participating in (or sponsoring) broker shows will not be an insignificant investment. Further, if you choose to work with multiple brokerage networks, you may find yourself devoting a substantial amount of time to these events. But the brand exposure—and the return in terms of lead flow—can be well worth it.
Depending on the industry or individual brand, franchise brokerage networks today, by some estimates, account for more than 10 percent of franchise sales. A good marketing strategy is made up of many ingredients. With the overwhelming amount of franchising information online for candidates to digest, increasingly, brokers are being relied upon to help people navigate their way through the complex world of franchising.
And while not a recipe for success for every brand, for some, they can provide real incremental growth—even if you have to go a little over budget to afford dessert.
Mark Siebert is CEO of franchise consulting firm iFranchise Group. Reach him at 708.957.2300 or firstname.lastname@example.org. His new book is “Franchise Your Business: The Guide to Employing the Greatest Growth Strategy Ever.”