Effective Franchise Sales Continued

Success In Franchising

Stephen S. Raines
President, National Franchise Associates
Atlanta-based Specialists in Franchise Consulting & Franchise Sales Strategy

In my over three decades of experience as a franchise consultant, working in franchise development and franchise sales, I am often asked, “What makes one company succeed in franchise sales while another doesn’t?”

Rarely is there a single reason for success in franchise sales. Here, I will examine one of the many factors that can help Franchisors create a winning franchise sales strategy.

If you looked at my October post, you know that typically, there are three options for who is going to spearhead your franchise sales efforts, including:

  • Using the franchise management team (usually the owners of the franchisor company) as the franchise sales force
  • Retaining an outside franchise sales representative, such as a franchise broker
  • Hiring an in-house franchise sales person

Let’s assume that the owners/managers of the franchise company decide they do not want to handle franchise sales. The next decision is whether you wish to retain an outside franchise sales representative, such as a franchise broker. Here are the pros and cons of this option.

Here are the reasons to consider retaining a broker to generate franchise sales for your new franchise company:

  1. The broker has knowledge of franchising, including what is involved in franchise sales.
  2. Most franchise brokers work on a commission basis. In other words, their services do not cost the franchisor any money until franchise sales occur.
  3. Most franchise brokers represent several franchisors at the same time, so they may have a number of “qualified” prospects in the franchise sales pipeline.

There are also several negatives to using franchise brokers:

  1. The commission a franchise broker charges typically ranges from 33% to 50% of the Initial Franchise Fee. This percentage can amount to $10,000 to $20,000 or more. Some brokers even demand a portion of the royalties franchisees pay the franchisor.
  2. Legally, brokers are the franchisor’s agents. The franchisor is responsible for any misrepresentations made by the broker, even if the franchisor didn’t know about such statements or specifically prohibited the broker from making the claims.
  3. Franchisors, especially new franchisors, should carefully study all aspects of their franchise sales program. Handing off the sales responsibilities to a broker removes the franchisor from knowing everything about their franchise sales program—what works and what doesn’t work. It is essential that all franchisors stay involved in the franchise sales program—especially during the critical first few years of operations.

More on franchise sales strategy next time…