The Future of Franchise Brokerage: What’s Wrong and What’s Changing

Franchise brokerage, as an industry, has been around for decades. When the model was introduced, it caught the attention of corporate escapees, salespeople and coaches interested in helping others get into the franchise space.

Over time, though, the industry has evolved — or devolved — to be more secretive and expensive to franchisees while giving franchisors and brokers leverage to guide prospects toward whichever investment model they please.

“People that are ‘franchise consultants’ typically aren’t really consultants. They’re just salespeople for a wider number of brands,” said Tommy Higham, managing partner at Stanford Franchise Pros. “People go into the broker business, I think, because they want to help people, and they like franchising. That’s all great, but you’d be very naive to think that the fact that they’re getting $20,000 to $30,000 to sell for certain brands but not for others doesn’t heavily influence what they’re doing. Of course, it does.”

Many franchise prospects remain unaware of how the franchise brokerage industry really works, and they enter into these relationships with full confidence that the consultant has their best interest in mind, and any research or matching support comes at zero cost to them.

This isn’t the case. And some people are talking about it, but many aren't. Given pushes for increasing transparency in the space and ongoing innovations available to brokers, the future of franchise brokerage is positioned to look much different than it currently does.

Regardless of the Industry’s Structure, Some Key Facts Persist

Franchise brokers are meant to match ideal candidates with ideal franchise opportunities. Even if the transparency surrounding cost and the matching process is lacking, brokers generally do operate under a few shared expectations: They need to work with prospective owners to identify the best-fit franchise opportunity and they should consider the prospect’s interests, finances, lifestyle goals and other professional strengths.

Whether brokers have previous franchise experience or simply understand the process through their time researching brands, they should be able to help prospective franchisees analyze data regarding potential investment opportunities using data found in the Franchise Disclosure Document, in other franchise development materials and in conversations had with existing franchise owners.

With widely shared expectations of brokers, there still may be some discrepancies between brokers, and it’s important that prospective franchisees take the time to find someone they feel they truly align with.

“It’s kind of the Wild West. There’s no real qualifications or anything [to be a franchise broker], so use them with some discretion,” Higham said. “If they’ve been [in the industry] a long time, they have, potentially, hundreds or thousands of people that they’ve placed. Get feedback there.”

What’s To Come

As more people pull back the curtain on the brokerage industry, and more specifically the payment model, things are going to have to change. Franchisees will become less and less willing to use a “free” service that will double the size of their franchise fee.

“In a perfect world, there would be consultants that get paid by the hour,” Higham said. “I think it’s fair to look at them as salespeople — at least that’s what the incentive structure is designed to get them to do. But they can be a great resource. They’re still trying to sell you that license, but they also want to make sure that you’re going to be successful with that brand. Ultimately, [franchisors] don’t turn down too many franchisees if they have the capital and are willing to do it, and brokers typically have a much broader range of franchises that they’re marketing and selling. There’s certainly no downside.”

Read more about franchise brokerage on 1851:

• Choosing the Right Franchise Broker: Tips From the Pros
• The Role of Franchise Brokers in the Franchise Industry
• Top 8 Franchise Brokerages for 2024