Why do Franchisors use Franchise Brokers?
One of the most common questions asked by those looking to become a franchise broker is, “why do franchisors use brokers, and more importantly why do they pay them these huge referral fees?”. Here are some reasons why.
At its most basic level franchisors use brokers because brokers bring them well qualiied and well coached prospects. In fact, according to FranConnect, a leading software platform use by franchisors, a prospect introduced by a franchise broker is 5 times more likely to become a franchisee than any other marketing source used by franchisors.
Franchisors can spend thousands of dollars on marketing and combing through hundreds of prospects, many of whom are not financially qualified or from markets where that brand is not available, or any other number of reasons that prospect may not be a good fit for their brand. Good franchise brokers help offset not only the financial investment but the time required to work through so many leads.
In addition, a franchise broker has an advantage when it comes to these same marketing techniques… Where a franchisor generally only has the option to say “thanks but no thanks” to the prospects not suited for that particular brand a franchise broker representing many franchises has other options for them. “Gee Mrs. Smith, the brand that you are interested in is not available in your market but I do know of some similar brands that are. Would you be interested in exploring those instead?”.
So bottom line is even though franchisors do pay large commissions to brokers quite commonly when time and money are factored in the franchisor often comes out money ahead compared to handling all their marketing internally.