“Do you want how much money?” I asked Jason Killough, who served as my vice president 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 you crazy?”

Look at everything they do!

Calmly, Jason continued, “It’s not just to send us a clue, John. First, they find the clue. We do not! Keep in mind that it costs us about $10,000 just to find a good lead. They find the lead, educate the lead, introduce the lead to our concept, teach them about our business, send us only leads that make sense to us, and prepare them for us to close the deal.”

“We are in the wrong business, my friend!” I told him. “With so many people calling me to buy a franchise every year, I need to be in that business.”

Good brokers deliver quality franchisees

Jason laughed. I knew she was kidding, 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, resulting in quality franchise sales, I changed my mind.

I used to tell my clients, “Don’t use a broker to sell your franchises. You don’t have to! You can generate leads and sell on your own. I’ll show you the process.”

That was then. This is now. And for several years it has been a different world for everyone.

Not all runners are the same

I am still cautious about using brokers. Many of them are not dependent. Too many of them do it for the money and don’t add value, which is really matching a franchise prospect with the right franchise opportunity.

However, like everything else that involves contractual relationships, when you bring the right parties together, you make beautiful music. Or maybe in this case you make beautiful franchises.

making beautiful franchises

David Omholt, founder and CEO of The Entrepreneur Authority (TEA), is making beautiful franchises with franchisors. He is doing it for dozens of companies represented by his network of brokers spread across the United States. Years ago, before I launched TEA, David visited me for some start-up advice. I thought he was crazy!

Who needs runners? Do it? Launch a brokerage service? Why?

Franchisors don’t want that. Franchisors don’t need that. Good luck friend.

Integrity sets TEA apart

As it turned out, Omholt didn’t need my advice because he had a well-thought-out plan: His consulting experience at Accenture prepared him for his launch. What helped him the most, however, was his commitment to integrity. This wasn’t some quick-buck artist who was going to force people to buy businesses they didn’t want and weren’t ready to operate: he was a guy who understood the value of building relationships and serving the same customers over and over again. . and again

He still thought he was crazy for launching a brokerage, but he was confident he would do it with integrity. In fact, he is the only broker to win the President’s Award from the American Franchisees and Distributors Association, in recognition of the standards he has set for brokers.

So I asked David Omholt why franchisors should use brokers. This is what he told me:

Three good reasons to use brokers

1. Local scaling. “We are surgical by nature,” he said. “We work locally, so we meet prospects face-to-face. We don’t just search for potential customers on the internet or talk to faceless people. We know the local market, we know who is looking for a franchise in that market, and we get to know them personally. We target a specific market so we can find good franchisees. We help a franchisor group their units into one region because we have the region covered. We are the franchisor’s best source to fill their markets.”
2. Best Royalty Producers. “We can find the best franchise candidates and match them with the franchise opportunity that makes sense for them and as a result, they become better producers for the franchisor,” continued Dave. “We meet face to face with each candidate. We get to know them. We understand their likes and dislikes. We know the type of business they want to have and we also have an idea of ​​the type of business they will be good at developing. And we don’t represent just one franchise, so we’re not limited, and prospects know that. An inside seller has a franchise to sell and will sell it to that prospect. But that’s not our situation. We have many different types of opportunities to sell and we can give ourselves the luxury of matching the prospect with the best opportunity. That’s how we find the best fit. We can see the mistakes and cut them in the act, so once our candidates become franchisees, they tend to be the best royalty generators.” . . . . I can personally attest to that point. TEA found some of the best producer franchises for HomeVestors. Those candidates would not have purchased a HomeVestors franchise without TEA guiding them to the opportunity, knowing that it was the best opportunity for that candidate at the time.
3. Cost optimization. “We’re efficient for a franchisor because by outsourcing to us, a franchisor can reduce internal development expenses,” Dave explained. “A franchisor can reduce the cost of supporting an in-house development team by using brokers who will find the best prospects for the franchise company. Since we only get paid on performance, it’s not a difficult check to write when we turn over a candidate. Plus, that candidate has already been educated, we’ve answered all of their general questions, so the in-house team can quickly zero in on a prospect’s specific concerns and close the deal. We reduce franchisor expenses.”

Many brokers to choose from

Franchisors that work with brokers generally work with more than one; they are often not limited to exclusive deals. The latest edition of the Franchise Opportunity Guide, published by the International Franchise Association, lists more than 25 companies that provide brokerage services to franchisors.

Franchisors will find commission structures to be similar between brokers, they are all in that fifteenk or higher range, but their capabilities will vary. Since not everyone is created equal, it is important to do your due diligence before signing a contract with a broker.

Who knows what that broker is doing?

One of my concerns about brokers, and a concern expressed by many franchisors, is controlling what they do and say. “How do I know what the guy is telling prospects about our business? … How do I know he’s not financially misleading prospects about our opportunity?”

Brokers don’t close deals

Those are valid concerns and should be addressed with brokers when building a relationship. However, keep in mind that brokers do not close franchise sales. For $15,000 you’d think they would, but it’s better for the franchisor and franchisee that they don’t!

The franchise closes the deal, or not

They bring the candidate to the franchisor’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 cut the deals for us. They don’t close them.”

The franchisor has the opportunity to ask the candidate what he knows about the franchise, what the broker told him about the business, and what he expects if he becomes a franchisee. “We have the opportunity to agree to a sale or deny it. It’s always our decision,” Jason assured me.

No deal, no broker fee, no handsome franchise.

So if a candidate was misled, the franchisor doesn’t close the deal, at least not without correcting the misinformation. Of course, if the deal doesn’t close, the broker doesn’t get paid either. And a broker who misinforms a candidate is likely to do it again, and that’s a broker who will quickly exhaust his chances of making a beautiful franchise.

And at $15,000 each, no good broker wants to risk that opportunity!