How Do Emerging Franchisors Sell Their First Franchises?

Where do the first franchise sales actually come from?

The first sales usually come from people who already know the brand: loyal customers, employees, vendors and friends of the founder, followed by qualified strangers from paid search and social ads. Brokers tend to show up later, once there is a track record to sell.

I sold franchise units myself when I was CMO of a franchisor in Southern California, and the pattern has not changed much. A candidate buying unit number three is buying the founder as much as the model. That is why the founder needs to be on discovery calls and at discovery day, not delegated away.

Why are brokers harder for a brand-new franchisor?

Brokers are paid on closed deals, so they steer candidates toward brands that close easily, and a system with few non-corporate units and thin Item 19 data is harder to place. In our experience, broker networks typically cost $25,000 to $40,000 per sale, and newer franchisors often pay a premium on top of that.

By comparison, our data puts cost per franchise sale through PPC at typically $5,000 to $15,000, with most clients landing between $7,000 and $12,000. That is usually one-half to one-third of the broker cost. We break the comparison down in Are franchise brokers worth the commission compared with PPC?

What has to be in place before you run ads?

Your legal and sales foundation has to be finished before the first ad runs, because ads are offers and offers trigger the rules. Use this checklist:

• Current FDD. Under the FTC Franchise Rule, a franchisor must give a prospect its disclosure document at least 14 calendar days before the prospect signs a binding agreement or pays anything (16 CFR 436.2).
• State registrations or exemptions. Only advertise into registration states where you are registered or exempt. Some states can also condition registration on escrowing or deferring franchise fees; Washington's statute, for example, lets the regulator require escrow or impoundment of fees when it finds that necessary to protect prospects (RCW 19.100.050).
• An Item 19 decision. If you want to talk numbers in ads or sales calls, they must be in Item 19 first. See Can you use Item 19 financial performance numbers in franchise ads?
• A CRM and a follow-up cadence. Someone has to call a new lead within minutes, not days.
• A landing page that qualifies. State the investment range and liquid capital requirement up front.

Can a franchisor with only company-owned units publish financial performance numbers?

Yes, with conditions. NASAA's 2017 Financial Performance Representation Commentary says a franchisor with no operational franchise outlets can make a gross sales representation based on company-owned outlet data alone, if it has a reasonable basis and discloses material differences between those outlets and future franchise outlets.

The same commentary says a franchisor with fewer than 10 substantially similar outlets is presumed to have too few to base a representation on a subset of them. In plain terms: if you have three corporate locations, show all three, explain how they differ from what a franchisee will run, and let franchise counsel draft it.

How much should an emerging franchisor budget to sell the first units?

Budget for cost per sale, not cost per lead. Our all-time average cost per franchise development lead is about $32, and a CPL above roughly $100 is a red flag. But a lead is not a deal. At $5,000 to $15,000 per sale through PPC, five deals in year one means planning for roughly $25,000 to $75,000 in total acquisition cost, plus a lot of the founder's time.

Management is the smaller line item. Our fee is usually a flat $750 to $1,000 per month unless the brand spends more than roughly $10,000 to $15,000 per month on franchise development ads. More detail is in What is a realistic cost per franchise sale? and our post on startup franchise sales.

What mistakes slow down first sales the most?

The most common mistake is buying more leads than the team can work. A founder who is also running operations can handle only so many discovery calls a week. Match spend to closer bandwidth; our post on franchise lead capacity planning walks through the math.

1. Advertising to the whole country before you are registered in the registration states.
2. Making earnings claims on calls that are not in Item 19.
3. Letting leads sit for a day before the first call.
4. Skipping the qualifying questions on liquid capital and timeline.
5. Handing sales to a junior hire before the founder has closed a few deals personally.

If you want a second set of eyes on your launch plan, request a proposal.

This page is general information, not legal advice; confirm registration, disclosure and Item 19 questions with your franchise counsel.

Common questions

Figures labeled as ours come from Lead PPC's franchise development campaigns; your results depend on your brand, budget, territory availability and sales follow-up. Rules and platform policies change, so confirm anything legal with your franchise counsel.

Related answers

• Costs & BudgetsWhat Is a Realistic Cost per Franchise Sale?PPC usually lands a signed franchise for $5,000–$15,000 in ad spend. Brokers typically cost $25,000–$40,000 per deal. Here is how to calculate and compare yours.
• ChannelsAre Franchise Brokers Worth the Commission Compared With PPC?Broker commissions run $25,000–$40,000 per sale. PPC usually costs a half to a third of that. Here is when each one earns its place.
• Sales ProcessShould You Hire an FSO or Build an In-House Franchise Sales Team?An FSO gets you selling fast with experienced people. An in-house team gives you control once deal flow is steady. Here is how to decide, and when to switch.