Going Broker? Franchise Development Pros Discuss Brokers' Pros & Cons

Without question, brokers are a significant element in franchise growth. Last year, 69 percent of the brands surveyed in Franchise Update’s Annual Franchise Development Report paid to be in a broker network. Seven in 10 of the brands that used any form of broker said they’d closed a deal through a broker in the previous 12 months.

If you’re considering whether to use a broker, certain caveats apply. “Be sure that you are working with the right person,” says Tori Jones Bermond, franchise development manager at PJ’s Coffee. For the potential franchisee, she says, “You want your broker to introduce every brand that could be a match for you – not just the brands with a high referral fee. I believe, however, that most of them do a great job of providing their clients with options, regardless of fees.”

For the franchisor, says Tom Monaghan, senior vice president of franchise development at CertaPro Painters, “You have to be willing to build long-term relationships with brokers, individually and as groups. You also have to be direct about what you want and what you don’t want.” And while franchisors must trust the brokers they choose to work with, “Brokers have to trust you, too,” says Monaghan.

Lance Freeman, president of franchise development at Xponential Fitness, agrees. “We have fantastic, longstanding relationships with a number of brokerages and networks of brokers. The brokers who provide a premium experience are really engaged with our brands and their growth. They stay up to speed with each of our brands’ growth and performance, which means a client is able to make the most informed decision based on the most relevant and current information. This kind of dedication and skill set is great to look for when determining which broker to work with.”

Working with brokers requires making sure they understand as much as possible about your brand, says Charles Kowanetz, senior director of franchise sales at My Eyelab. “Franchisors who have the most success working with franchise brokers are frequently educating them on their business model, their FDD elements, unit economics, and markets of interest. With all of the franchise opportunities available today, it is crucial to educate them on the advantages your brand offers a potential franchisee.”

To broker or not to broker?

For those unfamiliar with the ins and outs of working closely with franchise brokers (see the next article), there’s a lot to learn. While the benefits can be significant, so can the cost. But culture also can play a large role in finding the right broker for your brand.

That’s the case for Samir Daoud, franchise director at Gold Star Chili, which in 2017 acquired Tom & Chee as part of its long-term plan to expand by offering multiple franchise brands. Both brands are family-run and based in Cincinnati.

The company is now ready to reach beyond its original Midwestern scope, says Daoud, and he’s made sure both brands are ready with updated websites and financials. He wants to grow, and is eager to understand all the available options of broker types, fees, and how brokers work.

“I don’t know yet what I don’t know,” he says. “We are very ingrained in our culture. Our brands are based in family culture. I will need someone who gets what we are.”

Terri Harof, director of franchise development at Workout Anytime, has always used brokers, but she’s found another source of strong franchisee candidates. “I am getting a ton of leads from our members,” she says, which may have something to do with the pandemic. “People know now, more than ever, the importance of health and wellness. It seems like everyone wants to own a gym. From a franchise sale and membership standpoint, last year was our best ever.”

Harof says she’s observed the pandemic taking a toll on broker activity, noting that some of the broker networks she works with seem to have slowed down a bit. “It seems that some people may have hit pause because of Covid,” she says. Harof says she also missed connecting with brokers at the industry conferences that made it easy to get to sit down with them face-to-face. “A Zoom call is just not the same.”

The money thing

“One drawback to using franchise brokers would be the cost. Many broker organizations have a monthly franchisor fee associated with the organization. Most brokers also collect a percentage of the franchise fee,” he says. At My Eyelab, “We pay a broker $20,000 on a successful placement off of the franchise fee of $34,900.”

For anyone exploring which franchise to select as an investment, however, the market could not be better, nor the choices more – and brokers can make a big difference in the selection process. “There are more franchise concepts out there, and the market is more competitive in terms of brands,” says Freeman. “However, this has created an opportunity for the brands that are performing well as they are standing out among the others even more so now.”

Brokers also can be an important part of the educational process for someone new to franchising, says Freeman. “There are a number of deciding factors to help determine what franchise to invest in, including industries you’re interested in, areas of passion within an industry, start-up budget, and level of franchisor support provided,” he says. “If it’s too difficult to figure out these areas alone, a franchise consultant or broker can certainly help guide you through all of this to help you narrow down what franchise options fit your criteria and the specific brands available to you.”

For prospective franchisees, adds PJ’s Coffee’s Jones Bermond, “Brokers bring options and can be very efficient. They can weed out the brands that may not be the best fit.” And for opportunity seekers, she says, “There are no real drawbacks as their services are usually free.”

Success breeds competition

Today’s competitive franchise market can make a broker even more important to a franchisor’s survival. Monaghan says the recent success of home service brands, including his own (CertaPro, a 30-year-old brand, grew almost 30 percent last year), has attracted competitor brands. This means heightened competition for the best franchisees and raises the value of a lead likely to end in a signing. He might pay a daunting sum for a broker-sourced franchisee, but he knows the cost can be amortized over time. “Ultimately,” he says, “it’s about building the brand. And we’d be negligent if we didn’t use that resource.”

In the ongoing quest by franchise development teams to continuously improve their recruitment process, brokers can be an important part of the mix for many brands.

At My Eyelab, Kowanetz works hard for recruits, and one way among many to find good ones is to keep his brand in play with brokers. “Broker referrals typically make up 10 to 20 percent of our new franchise sales per year,” he says. “Broker leads should not be the only source a franchisor uses for franchisee recruitment, but definitely be a portion of the strategy.”

Monaghan, too, along with using brokers, has his own recruiters making calls, along with a robust social media presence and print visibility.

As for brokers and their performance, says Jones Bermond, “I have seen a recent change for the better in the programs. They seem to be much more involved in the process and truly know their clients,” she says. “Most of them want to join every discovery call and be there for the client every step of the way – which is great!”