Franchise Brokers vs Franchise Developers: Everything to Know

Franchise Brokers, who exactly are they?

As you continue to research how to franchise your business, you’re bound to run into “Franchise Brokers”, though you may not even know it! A Franchise Broker is someone who may present him or herself as a franchise business consultant and may even call themselves a¬†franchise consultant; HOWEVER, don’t be confused by their title. Bottom line is that a Franchise Broker is someone who has a book of franchise concepts and has been authorized by various franchising companies to sell their franchise opportunity.

What Do Franchise Brokers Provide?

Lead generation is a Franchise Broker’s primary purpose. Technically a Franchise Broker will spend his/her own money to advertise a franchise concept to generate lead activity and convert these leads into serious buyers. Some simply pass these leads to the franchising company; others provide a thorough screening to make sure the prospective buyer is a good match for the franchising company. For this service the Franchise Broker makers a commission (typically 40%-50% of your Franchise Fee) each time someone purchases a franchise they represent.

In general, a Franchisor should NEVER give a Franchise Broker access to all leads they generate. The Franchise Broker makes such a large commission in part because they are supposed to be generating their own leads. If the lead is no longer interested in one franchise concept, the Franchise Broker will simply re-direct that person to another franchise within their vast book of franchise opportunities. Always be careful, a lot of Franchise Brokers are predatory and seek out new Franchisors so they can buddy up to them and require exclusivity… this is not good.

Because Franchise Brokers have a hard time of it, recently we have seen a waive of them now claiming to be Franchise Developers (go figure). At the American Bar Association Forum on Franchising this was a hot topic. These Franchise Brokers have no experience, farm out the work, produce sub par work, provide poor advice and have hidden agendas to exclusively represent the Franchisor to make a hefty commission.

What a Franchise Broker is NOT.

Just to be clear, a Franchise Broker is NOT someone who specializes in franchising your business model from scratch. A Franchise Broker will NOT personally create all the forms and legal documents needed for you to offer franchise opportunities nationwide. For that you need a true Franchise Developer. For the record, it is a conflict of interest for a franchise developer to sell their client’s franchises. Would you trust a real estate agent to build you a solid house? Would you trust a dentist to give you face lift? We think not!

Ask Questions

So how do you know if you are talking with a Franchise Broker (masquerading as a Franchise Developer) or if you are talking with a legitimate Franchise Developer? We have a whole list of questions that you should be asking anybody you are talking with about franchising your business. Contact us and we’ll share that list with you!