There are as many ways to succeed in franchise development as there are franchise concepts, but one thing has become abundantly clear: franchise consultants (also called “brokers”) are having a stronger impact on how franchisors award franchises
How does someone break into the thriving and relatively new industry of franchise consulting? You could start at the bottom working as an apprentice for a more seasoned franchise development professional. This investment of time and effort over a three- to five-year timeframe could yield significant enough experience to warrant a promotion and accompanying rise in compensation.
Unfortunately, opportunities like that are few and far between, and compensation for someone with no franchise development experience would likely hover just above minimum wage.
If starting at the bottom and slowly learning the development business doesn’t excite you, then perhaps you should consider going back to school. No, I don’t mean a two-year MBA program, but rather a respected Franchise Consultant Certification course such as the CFC (Certified Franchise Consultant) Program, offered by the International Franchise Professionals Group (IFPG).
This provides everything an aspiring entrepreneur needs to launch quickly and successfully into a career as a professional franchise consultant. From the IFPG’s extensive one-on-one training and 150-plus hours of continuing education sessions to their CRM, ongoing mentoring, and regional and national events – course members will graduate as a confident and competent franchise broker. As a bonus, numerous interested, qualified leads are provided to the new graduates, along with a customer website personalized for the consultant.
The CFC designation is crucial for anyone wanting their level of expertise in franchising to be recognized by their prospects, clients, peers, and franchisors.
There have been many a lively debate on the pros and cons of a franchisor’s motivation for working with franchise consultants, but no one can argue the significantly lower financial risk that brokers provide franchisors desiring to attract more interested franchise buyers.
Each year, Franchise Update Media Group publishes the extensive results of their survey of over 500 North American franchisors. It is focused on all areas of franchise development. One statistic often quoted is the average marketing and advertising expense, per sold franchise. This number has fluctuated around $10,000 USD for several years.
Franchisors working with consultant groups such as the IFPG typically risk 80 per cent to 90 per cent less in upfront marketing dollars to close a franchise sale, Area Development Agreement, or Master License compared to what they would have to spend without the broker. The process of identifying attractive master franchise buyers can be significantly easier when contracting with franchise brokers in high priority countries. This is a huge influence as to why the franchise broker world is booming globally.
Lower risk, higher reward
Professional franchise consultants also save franchisors precious time and effort by providing higher quality, vetted, and sincerely interested candidates. This can mean less staff are required to sift through the hordes of low-quality leads purchased through online franchise portals, pay-per-click programs, or unproductive expos.
For the emerging and smaller brands, working with consultants allows them to risk less of what is often a very limited budget. Overconfident or fool-hearty franchisors who roll the dice on an expensive marketing campaign often come to regret that strategy, and pass the risk over to the hundreds of eager consultants ready to hit the streets in search of hungry, entrepreneurial executives.
Many industries put a premium on the competence of professionals who can act as skilled “matchmakers” between buyers and sellers – the franchising industry is no different. So how much should a franchisor pay in commission to these matchmakers? There are several important influencers to determine your answer to that critical question.
The IFPG is happy to provide new members with complementary guidance on this important decision and explain what the averages are and what similar brands are paying. Once a franchisor understands and is comfortable with each of these commission influences, they often realize the need to increase their franchise fee to be competitive and achieve their development goals.
Franchisors are willing to pay high commissions because their franchise agreement, a legal and binding document signed at closing, is typically a 10-year contract that represents royalties for a decade plus multiple five-year renewals. This same mindset applies to Master and Area Development agreements, as well.
“For the emerging and smaller brands, working with consultants allows them to risk less of what is often a very limited budget”
The bottom line
If franchise consultants weren’t effective at matching franchise opportunities with qualified buyers, franchisors wouldn’t be willing to pay top-dollar commissions. Furthermore, when franchisors use other methods that don’t involve consultants, they usually need to spend at least $20,000 USD out of their marketing budget to sell a franchise and close the deal. The global rise of franchise consultants recruiting for franchisors is such an exciting topic to discuss because it is solving a big need in the franchise marketplace. The abundance being created by franchisors and consultants working together continues to blossom. Ultimately, it comes down to more lives positively impacted through this wonderful franchisor-consultant relationship, and the IFPG could not be more proud of the significant role we are playing in it.
7 THINGS TO CONSIDER WHEN DETERMINING YOUR FRANCHISE BROKER COMMISSION
1. The average commission percentage of the franchise fee hovers between 50 and 60 per cent. Typically less for Area Development and Master License Agreements
2. The higher the overall investment, the higher the franchise commission should be
3. The higher the franchise fee, the higher the commission – but the average commission percentage of that fee tends to be lower
4. What is your competition paying?
5. How “hot” is your brand and business category?
6. How aggressive do you want to be?
7. Do you need to make a profit (and how much) on each franchise you award?
ABOUT THE AUTHOR
Red Boswell is president of IFPG and has over 25 years of executive leadership experience. He is responsible for continuing to grow IFPG’s membership and can be contacted at ifpg.org/teamview/ red-boswell