The Pros and Cons of Using Franchise Brokers

Let's face it, there are a lot of franchise brands out there — over 3,000 in the U.S., according to the International Franchise Association. This abundance of choices makes it difficult for prospects to know which brand they should invest their capital in and can also make it difficult for franchisors to find their ideal owners. Franchise brokers aim to solve some of these issues by acting as a matchmaker for franchisors and franchisees. Still, there are several pros and cons to working with franchise brokers.

The Pros

Most importantly, franchise brokers are experts in all aspects of the franchise industry. They have up-to-date information on different franchise opportunities and can tailor a potential franchisee’s options based on their interests and values. This makes the overall due diligence process less daunting for prospective owners. Their services are also helpful for the franchisor, as they can filter out any buyers who are simply browsing and who are not serious about their investment — or not qualified to make one, for that matter. 

“There are thousands of franchise systems out there, so having someone who can help candidates do the proper research and gather data is a big part of the due diligence process,” said Corey Elias, founder of Franchise Captain, an Atlanta-based franchise brokerage. “Brokers know all the systems out there, and we have back-end data on what those systems look like and can ultimately help people narrow down and find the franchises that will be the right fit for them.”

For franchisors, this means a larger pool of qualified prospects. “They’ve met with them and really understand their needs as a franchisee,” said Linton Dowling, marketing director at Raintree*. “On the other side, the best brokers understand the quality traits that the brand is looking for in an ideal franchisee. These candidates will meet all requirements, such as availability, location and financial prerequisites.”

The Cons

There are also a few cons, however, when it comes to using a broker. Because they don’t charge franchisees for their services, they earn a percentage of the franchise fee when a franchisor makes a sale. This, in some cases, results in inflated signing fees and, in turn, costs potential franchisees more money than they bargained for. Franchise brokers’ commissions vary, but typically they are paid up to 50% of an initial franchise fee that could range between $30,000 and $50,000. In other cases, franchise brokers are paid a flat rate. 

“With brokers, franchisors will have to pay more — the commission rates that broker networks require take a significant amount of the franchise fee from the brand,” said Dowling. “Therefore, it impacts the ability to inject capital into other important processes, such as real estate, construction, training, marketing and support.”

And while filtering brands may be helpful for some franchisees, for others, it can leave out options they may have explored further on their own — brokers may only match franchisees with brands that will result in a high payout for the broker and omit otherwise great matches. Some brokers may represent more prominent, well-known brand names, and others may have a portfolio of smaller, mid-range franchises. That is why potential clients (franchisees and franchisors) should talk to multiple brokers to cast a wide net and ensure they see a range of options.

Charlie Bever, CFE, senior franchise consultant with The Entrepreneur Authority, says the very best franchise brokers capture and understand their candidates’ buyer values and then match their values against what the franchise offers.

“Not all franchise brokers are the same,” said Bever. “The best franchise brokers are a ‘coach’ — someone who is debriefing with the prospect all throughout the franchisor's discovery process. Providing the prospect with knowledge and firsthand experiences, and being a one-stop shop for them for resources while they complete their due diligence, is key. That is why it is just as important to do your research when selecting a franchise broker.”