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; don’t be confused by their title (learn the difference between different titles in the franchise industry). Bottom line is that a franchise broker is someone who has 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 charge franchising companies a fee to display their concept. The franchise broker makes a commission each time someone purchases the franchise they represent. Typically they command 40%-50% 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 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.
The whole idea of paying such a high commission to a franchise broker is because that person is generating all the lead activity. That means they spend their own money to advertise the franchise concept to generate lead activity 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 book of franchise opportunities. With that said it seems kind of silly to provide the franchise broker with leads the franchising company generates.
Yet we constantly hear that there are some franchise brokers that will only work with a franchising company if that company provides them with all of their leads and on top of that shares some of the advertising expense (tempting). Of course 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.
Get this some of them are even dubbing themselves as experts in franchise development. 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…Scary.
