Should your brand partner with franchise brokers in order to grow?
Brands that create significant deal flow through brokers tend to fall into specific categories, and must be active to maintain mindshare.
If your brand is small, new or in a crowded category, brokers can raise your profile. If your price point attracts first-timers, brokers reduce lead screening costs. For example, Bio-One, a biohazard and crime scene cleaning franchise, primarily recruits through FranServe brokers, and has grown from 24 to more than 100 locations in four years. The brand attracts many first-time business owners and the overall cleaning category is crowded. Also, it’s crime scene clean-up, a specialized and unusual category. Extra candidate vetting is required. This is an ideal fit for broker-lead-generation approach.
According to CEO Jason O’Brien, “The broker fee is well worth it because they drive tremendous value. But I’ve also invested a lot of time building great relationships and explaining our concept to help consultants find the best operators. When we did that work in-house, it was too much and we found ourselves weeding through a bunch of the wrong leads. Now I only spend time talking to solid candidates for our unique franchise.”
Jake Rankin, CEO of Talum Home Care and Placement Services, provided similar feedback. “The brokers we work with are great at qualifying and assessing fit, and act as true consultants. Some even help line up lending options. Ultimately we avoid wasting time.”
Some prospects enter their search indifferent to brand or category. They just want a good business to run (owner-operator) or own (absentee investor). If your brand fits this profile, brokers can help this buyer type find you. An efficient and well-defined sales and close process will help maintain brokers’ attention.
For smaller brands, working with largely variable cost brokers is often preferable to employing staff. Many networks have low entry costs, but better visibility can be pay to play, involving higher investment tiers or paid event participation to get noticed or have direct broker access. Some networks cap their exposure to emerging brands or overcrowded categories.
Demonstrating focus and follow-through can win broker support. As Pete Baldine, president of Moran Family Brands, advised, “Take care of franchise candidates. Having a quality end-to-end process gets broker attention and support.” To succeed you must commit significant time and energy to build relationships, educate and stay top of mind.
Doug Schadle, CEO of Rhino7, noted, “Each group has a different style; you’ve got to devote the effort to really know them.”
There are other benefits. For Scott Sharkey, CEO of Sharkey’s Cuts For Kids, “It’s also important to me personally from a networking perspective. I get visibility to other concepts.”
Some brands pursue a hybrid strategy. They generate lead traffic on their own, but opportunistically keep one foot in the broker arena. As one CEO told me, “Paying broker fees generally doesn’t make sense for us and honestly, we’ve had mixed results with brokers.
“Unfortunately, too many networks make their annual meetings profit centers. But, for good candidates we’ll do a handful of deals per year. We assume we wouldn’t otherwise get those deals—brokers will simply recommend other portfolio brands. One group I spoke to had 400 brands. It’s too costly to get more attention.”
At the other end of the spectrum are brands that never leverage brokers. Is your brand highly visible? Do customers want to franchise? Are there unique affinity groups? Are franchisees expanding? If yes, you probably don’t need broker assistance to find good leads.
School of Rock has its own franchise development team. Lead gen efforts include advertising to guitar and live music fans, and SOR parents. Rich content on the franchise website helps leads self-select in or out. Then, a dedicated team that’s dialed into the brand’s cultural ethos screens for the best fit.
According to Tony Padulo, chief development officer, “No one shares our brand’s passion and identity like company executives who live and breathe that passion daily. A broker presenting a range of options cannot do justice to our brand. We want to provide true start-to-finish seamless support for any candidate considering an investment in our concept. School of Rock made the commitment up front to use in-house sales executives as its only source of awarding new franchises.”
Using this approach, School of Rock achieved 60 percent unit growth over the last three years, added new international markets, and now dominates its category with six times more units than its nearest competitor.
If you’re going to partner with brokers, you must bring something to the table. Yes, you need a good candidate engagement process. But brokers also won’t stick around if your underlying unit economics and franchisee validation are poor. In that case, a dedicated team will be needed. (Or even better, fix your weak model.) Also, if your franchise fee is too low, either you won’t interest brokers, or you won’t accumulate enough in fees after paying commissions to build infrastructure.
Closely manage reputational and legal risk to your brand. Make sure you have confidence in broker network leadership. If you’re new to franchising, ask for references. Brokers are not required to register, train, pass an exam, or be certified by federal or state agencies—or the International Franchise Association—to present franchise opportunities. Network training or broker disclosures vary. Ask broker-leads about financial representations. Document their answer. Broker-related lawsuits currently winding through the courts may redefine demarcations between “recommending” and “selling” franchises. Stay tuned.
Finally, consider the “why.” Buyers seek broker assistance to narrow thousands of options to a manageable tranche. Brokers only refer; they don’t close deals. Franchisors do. You’re the gatekeeper. No matter the lead source, ensure true fit and you’ll start your franchisee relationship off right.