“They want how much money?” I asked Jason Killough, who served as my VP of franchise development at a major franchise company where I was the CEO.
“Fifteen thousand,” he said.
“Fifteen thousand dollars to send us a lead to buy a franchise? Are they out of their minds?”
Look at all they do!
Calmly, Jason continued, “It’s not just to send us a lead, John. First, they find the lead. We don’t! Keep in mind, it costs us about $10,000 just to find a good lead. They find the lead, they educate the lead, they introduce the lead to our concept, they teach them about our business, they send us only leads that make sense for us, and they get them ready for us to close the deal.”
“We’re in the wrong business, my friend!” I said to him. “With as many people who call me about buying a franchise every year, I need to be in that business.”
Good brokers deliver quality franchisees
Jason laughed. He knew I was teasing, but I thought $15,000 was a lot of money, and I still do. However, after agreeing to several contracts with brokers, and paying them up to $15,000 for their services, which resulted in quality franchise sales, I changed my opinion.
Used to be I’d tell my clients, “Don’t use a broker to sell your franchises. You don’t need to! You can do the lead generation and selling on your own. I’ll show you the process.”
That was then. This is now. And for several years it’s been a different world for everyone.
Not all brokers are created equal
I’m still cautious about using brokers. Too many of them are not dependable. Too many of them are in it for the money and they do not add value, which is truly matching a franchise prospect with the right franchise opportunity.
However, like everything else that involves contractual relationships, when you bring together the right parties, you make beautiful music. Or perhaps in this case you make beautiful franchising.
Making beautiful franchising
David Omholt, founder and CEO of The Entrepreneur Authority (TEA), is making beautiful franchising with franchisers. He’s doing it for dozens of companies represented by his network of brokers scattered across the USA. Years ago, before he launched TEA, David visited with me for some start-up advice. I thought he was crazy!
Who needs brokers? Do what? Launch a brokerage service? Why?
Franchisers don’t want that. Franchisers don’t need that. Good luck, pal.
Integrity sets TEA apart
As it turned out, Omholt didn’t need my advice because he had a well thought out plan – his background as a consultant with Accenture prepared him for his launch. What helped him most of all, however, was his commitment to integrity. This wasn’t a quick-buck artist who was going to rope people into buying businesses they didn’t want and weren’t prepared to operate – this was a guy who understood the value of building relationships and serving the same customers over and over and over again.
I still thought he was crazy to launch a brokerage, but I trusted that he would do so with integrity. In fact, he’s the only broker to have won the Chairman’s Award at the American Association of Franchisees & Dealers, in recognition of the standards he has set for brokers.
So I asked David Omholt about why franchisers should use brokers. Here’s what he told me:
Three good reasons to use brokers
- Local scaling. “We’re surgical by nature,” he said. “We work locally so we meet prospects face-to-face. We’re not just working Internet leads, or talking to faceless people. We know the local marketplace, we get to know who’s looking for a franchise in that marketplace, and we get to know them personally. We target a specific market so we can find good franchisees. We help a franchiser cluster their units in a region because we’ve got the region covered. We’re the franchiser’s best source for filling in their markets.”
- Better royalty producers. “We can find the better franchise candidates and match them up with the franchise opportunity that makes sense for them, and as a result they become better producers for the franchiser,” Dave continued. “We meet face to face with every candidate. We get to know them. We understand their likes and dislikes. We know the kind of business they want to own and we also get a sense for the type of business that they will be good at developing. And we don’t represent just one franchise, so we’re not limited, and the prospects know that. An in-house sales guy has one franchise to sell and he’s going to sell it to that prospect. But that’s not our situation. We have many different types of opportunities to sell and we can afford to match the prospect to the best opportunity. That’s how we find the better fit. We can see the mistakes and cut them off at the pass, so once our candidates become franchisees, they tend to be the better royalty generators.” . . . I can personally attest to that point. TEA found some of the best producing franchisees for HomeVestors. Those candidates would not have bought a HomeVestors franchise without TEA leading them to the opportunity – knowing that at the time it was the best opportunity for that candidate.
- Cost optimization. “We’re efficient for a franchiser because by outsourcing to us, a franchiser can reduce in-house development expenses,” Dave explained. “A franchiser can bring down the cost of supporting an in-house development team by utilizing brokers who will find the best prospects for the franchise company. Since we’re paid on performance only, it’s not a hard check to write when we deliver a candidate. Plus, that candidate has already been educated – we’ve answered all their general questions – so the in-house team can quickly zero in on a prospect’s specific concerns and close the deal. We reduce the franchiser’s expenses.”
Numerous brokers to choose from
Franchisers who work with brokers generally work with more than one – they don’t often restrict themselves to exclusive deals. The latest issue of the Franchise Opportunities Guide, published by the International Franchise Association, lists more than 25 companies that provide brokerage services to franchisers.
Franchisers will find that the commission structures are similar among brokers – they’re all in that fifteen k-plus range – but their capabilities will vary. Since they’re not all created equal, it’s important to do your due diligence before you sign a contract with a broker.
Who knows what that broker is doing?
One of my concerns about brokers – and a concern that many franchisers voice – is controlling what they do and say. “How do I know what the guy is telling prospects about our business? . . . How do I know that she’s not misleading candidates financially about our opportunity?”
Brokers do not close the deals
Those are valid concerns, and they need to be addressed with the brokers at the time of forming a relationship. Keep in mind, however, that brokers do not close franchise sales. For $15,000 you’d think they would – but it’s better for the franchiser and the franchisee that they do not!
Franchiser closes the deal, or not
They lead the candidate to the franchiser’s sales team, and it’s the sales team’s job to close the sale. As Jason Killough told me when we initially discussed using brokers, “They tee up the deals for us. They don’t close them.”
The franchiser has the opportunity to ask the candidate what they know about the franchise, what the broker told them about the business, and what they expect if they become a franchisee. “We have the chance to agree to a sale or to deny it. It’s always our decision,” Jason assured me.
No deal no broker fee no beautiful franchising
So if a candidate was misled, the franchiser doesn’t close the deal, at least not without correcting the misinformation. Of course, if the deal doesn’t get closed, the broker also doesn’t get paid. And a broker who misinforms one candidate is likely to do it again, and that’s a broker who will quickly wear out his or her opportunities to make beautiful franchising.