How PuroClean Uses Brokers in Its Franchise Development Process
We asked Tim Courtney, Vice President of Franchise Development at PuroClean, about how his company works with franchise brokers. We’ll have more coverage on the role of brokers and third-party consultants in frandev in future issues.
What are a franchisor’s greatest benefits of using brokers?
Saving money (potentially) on lead generation and delivering a “pre-qualified” lead to the franchisor. This can help reduce headcount costs for the franchisor for the number of staff needed to develop and convert franchise candidates. I think broker groups are a “necessary evil” in development, as long as you use a deal ratio you are comfortable with. For example, we used to be over 60% broker usage and were down to 15% as of 2022.
What challenges should franchisors be aware of when working with brokers?
To succeed, franchisors must pay a competitive “success fee” and participate in networking events such as conventions or annual meetings. Some even charge a listing or shelving fee.
Brokers should disclose all fees they collect. Do they?
Good question… I don’t know.
What ranges do you pay for the following items?
- Success fee based on franchise fee: $30,000
- Marketing fees to the broker: Depends on the group, but minimal, usually for their magazine.
- Marketing dollars spent driving leads to the broker: $0.00
- Membership fee to the broker (or cost to be represented by the broker): Varies by group ($1,200 – $4,000 per month). I paid $6,000 per month once. It really wasn’t worth it!
- Other fees and/or compensation to the broker for services rendered: Convention/annual meeting participation including T&E. Some groups meet 2x a year (winter, spring). I tried a $5,000 bonus on top of our “success fee” for one group of converted candidates post-meeting for 3 months. It netted me one deal. However, I see more of these types of offers being made at every “meeting” as high as an additional $10,000.
When you are signing with a broker system, do you let them know your expectation in number of leads for the following 12 months?
Ha! To me, it feels like pay-to-play is the only way to gain good traction! You have multiple territories to sell, or can have a “broker’s” candidate buy multiple territories at one time. I feel if you are a single-unit seller it’s harder to get consistent lead flow.
Do leads from brokers take longer to close than leads from other sources or is it the same or shorter? If so, why?
Although we have closed some candidates in record time from these groups, the average I am seeing is the same or even longer than our average time to deal. I believe that because candidates are shown multiple concepts (both competitors and different industries) their evaluation process takes longer.
Who decides the success fee you will pay a broker? Is it a common practice that franchisors who pay higher fees will get preferential treatment on leads delivered?
Ultimately, we decide the “success fee” we want to pay these groups. You want to be competitive with this fee compared with your competitors. I certainly believe this can affect whether or not you get shown to a candidate. If we were paying $10,000 to $15,000 less than a competitor, I bet we wouldn’t be shown at all, even as a very successful brand. I feel the new “shiny object” franchisor, with multiple territories for sale (3-pack, 5-pack, 7-pack, and even 9-packs), and with “success fees” paid on all of that, will remain on the top of anyone’s “show-list” ahead of an established brand.
Are royalties or equity in the business suggested or required by broker companies you work with?
Royalties, no; maybe an FSO would do this. Equity in the business, also no; maybe an FSO would do this.
How far does the broker bring the lead when it is delivered to you?
Each group has a handful of good brokers/consultants and will “Frick and Frack” with the sales team to help close the candidate. Maybe 20% vet properly and provide financial capability! The rest pass along the lead information like throwing darts at a dartboard. They send many territory checks, and some pre-register the lead... without any pertinent lead information. This way if the candidate purchases the franchise, they can come to collect their “success” fee. We have banned this practice!
From the time you receive the lead, what is your ongoing process to close the deal?
We treat it as if we generated the lead ourselves, minus any triggered email campaigns, automated texting, and funding discussions. This is usually discussed with the broker (they get referral fees from this). It is basically the same process.
Do you see any difference in the opening and success of franchisees who originated with brokers compared with those who came from other lead sources?
Do you have personnel dedicated to working with broker leads? If yes, why?
Yes, we work with every broker group in some capacity. It helps load balancing of the leads.
How many individual brokers (not broker systems) do you work with?
That varies from year to year. We maintain a few relationships, but we lose some and we gain some.
How many franchisors are represented by an individual broker from a broker organization?
They have access to every franchisor that is a member of that group. I know some brokers pick three brands they like per industry category, but in essence they can recommend any in the group’s portfolio.
How does the broker/franchisor relationship work? What liability or responsibility does the broker carry for franchisee success, if any?
As far as I know, brokers are not responsible for the success or failure of any franchisee.
Please list all the broker networks you have worked with or know about.
- The Entrepreneur’s Source
- Franchise Brokers Association
- The Franchise Consulting Company
- Transworld Business Advisors
- BAI (Business Alliance Inc.)
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