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Comparing your options for outsourced franchise sales

June 1, 2020

As franchisors downsize their internal franchise development departments, here are two options for franchise recruitment.  

Franchisors are planning how they will come out of the massive disruption of their franchisee and franchisor business models caused by COVID-19. Despite PPP and related loans, many franchisors have or plan on reducing staff to make their businesses resilient. Many positions will be eliminated, and others will be outsourced. 

One of the easiest and most cost effective places to outsource is franchise development.

Outsourced development solutions fall into two buckets: 

  1. Outsourced Franchise Sales Organizations (FSOs)
  2. Full-Service Franchise Development Solutions

Working with FSOs

Franchise Sales Organizations work leads and close deals. These solutions are popular with emerging growth brands with limited capital. Typically a franchisor is encouraged to up their franchise fee to $50,000 or more to pay for hefty franchise broker and FSO commissions, leaving anywhere from 20% to nothing for the franchisor in the end.

The Limitations of FSOs

FSO’s primarily generate their lead flow from franchise broker groups. FSOs build their own brand and reputation within the broker groups by closing deals and the franchisor receives some halo effect by doing business with the FSO. If you are a franchisor considering one or more FSO options, FPG recommends caution for the following reasons:

  1. Working with a FSO raises the franchise candidate’s risk by increasing their upfront investment costs (higher franchise fees) with no added value or corresponding return going back to the candidate. Ss such, FSOs reduce the franchise candidate’s ROI.
  2. FSOs primarily work with franchise broker networks. Many broker networks generate 50% of their deal flow or more on the backs of only a handful of brands, but have hundreds of concepts vying for their attention. Earning a place on the franchise broker’s short list is very time consuming and expensive.
  3. Brokers only represent 10% of total deal flow according to FranConnect’s 2020 Franchise Sales Index. 90% of deal flow stems from digital marketing efforts, content strategy, and non-broker brand referrals. Many FSO do not offer digital marketing, content, or non-broker referral lead generation services, which can be a far more productive and cost effective solution if properly executed. FPG always recommends exhausting the most cost effective deal sources first and then leveraging broker groups for incremental deal flow.
  4. The franchise broker model is a bit antiquated and ripe for disruption. Franchise brokers materially operate similar to the old real estate agent MLS model where the real estate agent was the gatekeeper of what the real estate buyer did and did not see. Similarly, the franchise broker controls what the candidate is shown and generally does not give the candidate access to the full broker franchisor inventory. The residential real estate buyer rejected this model decades ago in favor of a more self-directed buying experience. Portals could fill this role by increasing the amount of content they provide candidates. Indeed, when FPG analyzed why two portals — Franchising.org and Entrepreneur — have notably high lead-to-deal ratios compared to other portals, we saw a nascent version of this strategy. Once a portal or an outside agent creates a robust Zillow or Realtor.com-like website for franchise candidates, we expect to see a major disruption to the broker model as candidates race to access transparent, trustworthy, and in-depth information.
  5. The franchisor is under intense pressure from the brokers to approve every candidate regardless of fit, adding a significant amount of brand risk through the potential of underperformance and operational breakdowns.
  6. FSOs don’t help franchisors scale their companies with an organizational plan or additional capital structure. If brokers favor the franchisor and begin showing the opportunity en masse, the franchisor runs a risk of signing new franchisees too quickly, outpacing their franchise support systems. Without appropriate planning for support infrastructure, you can fracture your company. A wave of franchise agreements can turn into a later wave of struggling franchisees — harming the long term health of your brand.

Full-Service Franchise Development Solutions

Full Service solutions have the capability to take over entire franchise development departments on an outsourced basis. For instance, FPG is a strategic growth partner for its clients. FPG clients have signed over 4,000 franchise agreements since 2002.

Full service franchise development solutions offer more value-added services to build healthier businesses.

FPG offers clients highly integrated outsourced franchise development solutions

  1. Franchise buyer lead generation. FPG owns a full service lead generation digital agency working exclusively with franchisors to find more and better franchise buyers using SEO, social media, digital advertising, email marketing, geo-targeting, and emerging technologies.
  2. Franchise opportunity website design, content development, and video production.
  3. Outsourced franchisee recruitment. FPG recruiters understand and facilitate the entire franchise buyer research journey — from the moment they begin exploring franchise options (before they have even become a lead), to the conversations and support needed to help identify strong candidates and move them toward signing a franchise agreement.
  4. Strategy, advisory and executive coaching: FPG has over 100 years of combined experience working with over 120 brands.  FPG leadership understands and can anticipate organizational stress points and helps clients scale their operations to accommodate growth.
  5. Franchise financing for new start ups, resales, and remodels.
  6. Recruit Top Performers. FPG recruiters carefully ensure that candidates’ goals and personalities fit the business model and organization, creating more predictable and positive franchisee results.
  7. FPG helps build enterprise value. Private equity firms have a saying: “Buy right, build right, sell right.” We help brands build right. FPG is a quality growth catalyst for franchisors to build wealth and maximize their enterprise value at exit. Since FPG works with many private equity firms and private equity-backed franchisors, we’ve learned that many private equity firms discount franchisors who maintain a singular franchise lead generation strategy like FSOs, and reward a more diversified and therefore less risky multi-prong franchise lead generation and franchisee recruitment approach. 

See how we can help your brand

FPG’s team has worked with over 110 franchise brands in every stage of development from emerging growth to regional, national, and iconic, including Arby’s, A&W Restaurants, BrightStar Care, College Hunks Hauling Junk and Moving, Huddle House, Chem-Dry, Marco’s Pizza, Taco John’s, Great Clips, Molly Maids, Fantastic Sams, BP and Subway.

To speak with us about your franchise recruitment goals and how we can help you achieve them, fill out the form below.