Franchise Brokers: In It For The Money, Or Do They Really Provide Value In Franchising?

Continue learning about franchising beginning with this free report: 7 Habits of Highly Effective Franchisees. Get it now by subscribing to my newsletter!

David Omholt

They want how much money?” I asked Jason Killough, my VP of franchise development at HomeVestors, where I was the CEO.

“Fifteen k,” he said.

“Fifteen k 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 ten k 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 fifteen k was a lot of money, and I still do. However, after agreeing to several contracts with brokers, and paying them up to fifteen k 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 something like that. 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 franchisors. He did it for HomeVestors, at the time a viable franchise opportunity. He’s doing it today 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?

Franchisors don’t want that.

Franchisors don’t need that.

Good luck, pal.

Integrity sets TEA apart

As it turned out, David 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 to prepare for this article, I sat down at a local Starbucks to chat with David Omholt about why franchisors 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 franchisor cluster their units in a region because we’ve got the region covered. We’re the franchisor’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 franchisor,” 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 franchisor because by outsourcing to us, a franchisor can reduce in-house development expenses,” Dave explained. “A franchisor 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 franchisor’s expenses.”

Numerous brokers to choose from

Franchisors 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 franchisors.

Franchisors 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 franchisors 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 fifteen k you’d think they would — but it’s better for the franchisor and the franchisee that they do not!

Franchisor closes the deal, or not

They lead 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 tee up the deals for us. They don’t close them.”

The franchisor has the opportunity to ask the candidate what they know about the franchise, what the broker told them about the business, 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 franchisor 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.

By the way, do you know what Jason Killough is doing today? Take a look. David Omholt was happy to add him to his network.

Email this post