Outsourced Franchise Sales – To Outsource Or Not Outsource?

Outsourced Franchise Sales

Outsourced Franchise Sales… To outsource or not to outsource, that is the question. If you are going to outsource your franchise sales, there are a few minimum requirements that need to be in place, namely:

$50,000+ Franchise Fee – If you don’t have a franchise fee of at least around $50,000 most franchise broker networks won’t even look at you. Or at least, the brokers themselves won’t push you very hard. Also, you’ll have a hard time finding a quality FSO (Franchise Sales Organization) that is really going to drive a lot of sales either. About $25,000-$40,000 of your franchise fee is going to end up going to combination of either franchise brokers, your FSO, and/or maybe Google Ads / Meta Ads. So, you need a franchise fee that can support all of that.
15%+ Net Profit On Item 19 Of FDD – The higher your margins are, the easier it will be for an FSO to bring in a lot of sales. I like to see around a 20-30%+ profit margin. Anything over 30+ gets me REALLY excited.
1+ Locations – I’ve had people come to me requesting franchise lead generation or franchise sales services who don’t even have a single location. If you can’t even create 1 anchor location for yourself, you probably shouldn’t be franchising it. It’s nice to have a few existing franchisees as well so that you can use them for references when people want to actually check out your franchise and see how happy other franchisees are once they are a part of your franchise system.
$5,000+ / Mo. Ad Budget – Most FSOs are going want to really drive leads online via Google Ads and Meta Ads. Why? Because they give up substantially less money when they close a deal that wasn’t sourced through a franchise broker network.
$5,000+ / Mo. Management Fee – FSOs have some internal costs that they have to cover such as overhead for a Marketing Coordinator, A Designer, and at least 1 Franchise Sales Representative at a minimum. For this reason, FSOs typically charge $5,000-$20,000 / mo. for some type of a management fee. It’s also a hedge against taking on a brand that is hard to sell units on.

One thing that is not a requirement but is increasingly common is for FSOs to take either:

.5-1% Gross Revenue Royalty (Franchise Fast Lane & Rain Tree do this) OR
10-50% Company Stock (United Franchise Group, Rhino 7, and Oak Scale do this)

But hey, when you’re selling franchises, remember often time those people are spending tens of thousands of dollars a month on employees, paying you 5-7% of their gross revenue… you shouldn’t expect that you’re just going to be cashing in those $50,000+ wire transfers without any overhead. Your business model should rely more on your recurring revenue and overall longevity than it should on having to sell franchises to stay afloat.

11 Things To Consider Before Hiring An FSO

When considering an outsourcing partnership with a Franchise Sales Organization (FSO), it is essential to evaluate several key factors to ensure the success and growth of your franchise. Here’s what you need to consider:

Expertise and Experience: One of the primary advantages an FSO should bring to the table is a deep knowledge of franchise sales. Look for an organization with a proven track record and experience in your particular sector. Understand their strategies, processes, and the kind of franchises they have successfully sold in the past.
Alignment with Your Values: Franchise development is not just about signing on new franchisees – it is about finding partners who share your brand’s values and long-term vision. Ensure that the FSO understands the culture and ethos of your franchise and is committed to upholding these values during the sales process.
Resources and Network: Evaluate the FSO’s resources, including their sales team’s size and expertise, marketing capabilities, and the strength of their existing networks. A robust network can mean a wider pool of potential franchisees and better matches for your brand.
Communication and Reporting: Effective communication is key to any outsourcing relationship. Discuss how the FSO will keep you informed about their sales activities, lead generation, and conversion rates. Ensure that they provide regular, detailed reporting that aligns with your franchise’s performance indicators.
Cost and Compensation Structure: Understand the cost of outsourcing to an FSO. What is the fee structure? Are there additional costs for marketing, training, or other support? Compare these costs to the potential revenue and growth they claim to be capable of generating for your franchise.
Customization of Sales Approach: Each franchise is unique, and a one-size-fits-all sales approach will not suffice. An FSO should be able to tailor its sales strategies to fit the specific needs and selling points of your franchise.
Legal Compliance: Ensure that the FSO is well-versed in the legal aspects of franchising, including the Franchise Disclosure Document (FDD), and complies with all the relevant laws and regulations.
Onboarding Process: After the sale, the FSO’s role in onboarding new franchisees is crucial. Assess their process for onboarding and ensuring that new partners are set up for success from day one.
Conflict of Interest: Check for any potential conflicts of interest, especially if the FSO works with multiple franchises in similar sectors. It’s essential to ensure that your franchise isn’t disadvantaged or put in direct competition due to the FSO’s other commitments.
References and Testimonials: Before making a decision, request and check references and testimonials from other franchises that have worked with the FSO. This can provide you with a clear perspective on the FSO’s approach and effectiveness.
Exit Strategy: Discuss upfront the terms of disengagement in case the relationship doesn’t meet your expectations or if your franchise’s direction changes. You want to ensure that the exit can be as smooth and cost-effective as possible.

By taking the time to thoroughly consider these factors, you can make a more informed decision and select an FSO that will effectively contribute to your franchise’s sales and overall growth.

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