Franchise Sales Outsourcing – Is Hiring An FSO Worth It?

Franchise Sales Outsourcing
Franchise Sales Outsourcing is at an all-time high. More and more franchisors are choosing to outsource their franchise sales needs to what are called FSOs or Franchise Sales Organizations. FSOs are on the more expensive end of things charging between $5,000-$20,000 / mo. plus 40-50% of the franchise fee (on non-broker network generated sales). Many FSOs are now also charging .5-1% of the gross revenue generated by each location sold in perpetuity.
Even with all of these expensive fees and pricing, most FSOs are booked solid and have to turn away the bulk of the inquiries that request using their services. But, why are FSOs in such high demand?
Some of this I think goes back to the existence of franchise broker networks as well as high commissions for quality franchise sales reps in the first place. Franchise broker networks traditionally take about 50% of the franchise fee. So, if a franchise fee is $50,000 they are going to take about $25,000 of it. On top of that, usually the franchisor is paying some type of a commission to the internal sales reps who are helping to nurse those leads along.
Since such a massive amount of the franchise fee traditionally goes to franchise broker networks, internal sales staff, and even Google Ads, Meta Ads, and franchise portals. I think franchisors in general have become accustom to making more of their money from the 5-7% of gross revenue recurring monthly fees than just trying to live off of the initial franchise fees.
With all of these considerations in mind, many franchisors are willing to pay that $5,000-$20,000 / mo. management fee plus 40-50% of the franchise fee on non-broker generated sales. And, they’re even willing to pay 50% of the franchisee fee to the broker networks plus an additional 30% of the franchise fee for a total of ~80% of the franchise fee to a combined broker network + FSO sale in order to grow more quickly and dominate their markets.
The niches that we see FSOs focus on and be the most successful in are:
- Home Service
- Health / Wellness / Fitness
- Quick Serve Restaurants
It’s a volume game, and most FSOs focus less on trying to acquire more clients that they can charge a monthly management fee to and more on brands that they feel they can sell 10-50+ units per year.
Should You Hire An FSO?
The answer to this is maybe or probably. As an ad agency, we love working with FSOs because in general they have their marketing and sales dialed in much better and tend to close the deals that they should close. As we’ve started to provide FSO services for a limited number of brands ourselves, and I will say that when you have the right marketing and sales team in place, it can make all of the difference in the world.
It’s no fun having a franchise that isn’t growing very quickly. The margins end up being super low, and if you ever want to have your franchise brand(s) get acquired, it’s harder to do (at a good price) when you don’t have very many units. It’s the difference between having your brand be worth a few million versus tens if not hundreds of millions of dollars.
Whether you decide to keep your franchise sales team in-house or outsource it to an FSO, the most important thing is that you grow and retain franchisees. If this means spending a bit more to grow more quickly, it may be worth it to you.
Having said that, once you have 100-300+ units, you may be better off bringing your franchise sales team in-house to save yourself some money. The comes a point that you have enough units out there that the brand sells itself.
However, if you end up adding additional brands to your franchisor portfolio down the road, then you might end up deciding that working with FSOs again is a good idea once more. Money loves speed.
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We are a boutique franchise marketing agency via PPC (Google Ads + Meta Ads) that also provides franchise sales services..
Entrepreneur with a focus on Lead Generation, Google Adwords, Bing Ads, and Conversion.
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