Key Takeaways
Brand growth is always the franchisor's responsibility, but working with a franchise sales organization (FSO) can offer advantages.
As selling agents for franchisors, FSOs provide sales and other support services that can help franchise systems grow.
FSOs aren’t right for every brand, so it’s important to evaluate your goals and finances before hiring a franchise developer.
As a franchisor working to grow your brand, there’s nothing more important than identifying strategies for successfully increasing franchise sales.
For new and emerging franchisors, the pursuit of sales solutions often leads to questions about whether or not you should work with a franchise sales organization (FSO). For franchisors with good brand positioning, a track record of success and strong capitalization, the answer could be yes. But FSOs aren’t right for every franchise brand. From extra costs to potential risks, understanding the pros and cons of working with an FSO is critical for the success of your franchise system.
In this guide, we’ll discuss what franchise sales organizations are, how they can provide value to your franchise system, and what franchisors should know before working with an FSO.
What is a franchise sales organization?
A franchise sales organization (FSO) is a company or group of companies that provides franchisors with franchise sales and franchise growth support services. FSOs are sometimes called franchise development companies.
Should I work with a franchise sales organization?
Determining whether your franchise system could benefit from the services of an FSO depends on your brand’s unique franchise sales goals, track record of success, budget and growth strategy.
As a franchisor, working with a franchise development company can offer significant advantages when it comes to growing your brand. Working with the right FSO can provide your franchise system with capabilities, expertise and industry experience that your corporate team might be lacking.
However, FSOs aren’t uniform in the value and services they provide, and working with one might not be the right choice for your brand. Because of that, it’s important to understand the benefits and potential drawbacks of FSOs before deciding to work with one.
Advantages of Working with an FSO
Although FSOs differ in their focus areas, they usually offer growth-oriented professional support geared toward helping franchisors scale their franchise systems and improve franchise sales.
The benefits of working with FSOs include, but are not limited to, the following types of support:
Franchise sales strategies.
FSOs can help develop and refine a game plan to improve your franchise sales.Broker engagement and representation.
By presenting to and interacting with franchise brokers on behalf of your brand, FSOs can build trust with brokers and generate interest and sales leads for your franchise system.Performance-based marketing.
FSOs can manage marketing campaigns including paid advertising, landing pages and more to attract and qualify franchisee candidates.Franchise sales process.
By developing a franchise sales process that engages qualified candidates, FSOs can help franchisors close deals.Game-changing growth.
Working with the right FSO can be a game-changer for franchisors whose brands are seasoned, properly positioned and ready to grow.
While FSOs can provide enormous value for franchise brands, they aren’t always the right choice for every franchisor. Although there are plenty of franchise development companies that provide an excellent return on investment for franchisors, due diligence is critical before working with an FSO.
Risks of Working with an FSO
Like all businesses, the level of professionalism, expertise and quality provided by FSOs can vary from organization to organization. Even after you’ve determined that working with an FSO is the right decision for your brand, choosing the wrong one – or doing it at the wrong time – can create challenges.
Some potential risks of working with an FSO might include the following:
Mismatched strengths.
Different FSOs can have different strengths and weaknesses. Before working with a franchise development company, make sure their strengths align with your brand’s needs.Different strategies.
While one FSO might focus on broker engagement and deals, another might emphasize organic lead generation. Understanding an FSO’s area of specialization is critical for ensuring their strategies match your goals.Underperformance.
There are plenty of good FSOs out there, but franchisors should be wary of underperformers. Whenever possible, research an FSO’s past performance before investing in its services.Too early in the game.
Startup franchisors who work with an FSO before their brand is seasoned, properly capitalized and positioned for growth can waste valuable resources.
Knowing the benefits and risks of working with an FSO is critical for developing a growth strategy that works for your business. However, it’s equally important to determine whether or not your brand is ready to work with an FSO before signing on.
Is my franchise brand ready to work with an FSO?
Franchise development companies can be game-changers for franchisors hoping to grow their brands and expand into new markets. Before working with an FSO, though, it’s important to step back and determine whether your brand is ready for the level of growth an FSO can provide.
To determine whether your franchise system is ready to work with an FSO, consider the following questions:
How long have you been selling franchises? Does your franchise system have an established history of successful franchise sales, or was your Franchise Disclosure Document (FDD) issued within the last six months? For startup and emerging franchisors with few or no franchisees, it might be too soon to work with an FSO.
How many franchisees do you already have? Do you have existing franchises that you’ve successfully onboarded? If not, it might not be the right time to work with an FSO.
Do you have a high level of franchisee validation? Franchisee satisfaction is a key indicator of a thriving franchise system. How many of your existing franchisees will validate your brand to franchisee candidates?
By taking enough time to season your brand, you can ensure it’s positioned for growth before working with a franchise developer.
Key Performance Indicators
Beyond your franchise sales history and validation, evaluating your brand’s financial performance and goals before working with a franchise development company is crucial.
When deciding whether your franchise system is ready to work with an FSO, include the following questions in your analysis:
Are your numbers strong?
Do your KPIs and unit economics tell a positive story about franchisee performance and your brand’s income potential? Does your estimated initial investment indicate a good ROI? If not, consider waiting to work with an FSO until your numbers improve.Is your brand positioned competitively?
Have you differentiated your brand from competitors in your industry? If your franchise offering can’t hold its own compared to other similar brands yet, consider spending more time seasoning your brand before working with a franchise developer.Do you have the right budget and capital to support growth?
Do you have enough capital to support marketing campaigns, growth strategies and new franchisees? Make sure you can afford to scale before investing in a franchise developer.What does your five-year plan look like?
Do you have a five-year success plan that details your vision for launching and seasoning your franchise system, building up unit-level economics and validation, and growing and accelerating your brand? If not, make one before working with an FSO.
By ensuring that your franchise system is ready to work with a franchise developer, you can improve your chances for success while getting the most out of your investment in their services.
When is the right time to work with an FSO?
In franchising, timing is everything. Even if your brand is technically ready to work with an FSO, it’s important to make sure now is the right time to do so. Since reputable FSOs will usually want to evaluate your brand’s track record, remember to gauge your franchise offering and ensure it’s positioned for future growth.
To determine whether now is the right time to work with an FSO, evaluate whether your franchise offering meets the following criteria:
Your brand is developed. Most good FSOs want to see a brand that has been seasoned for around two years. By this time, your deep-dive economic story should be enticing, you should have a compelling franchise brand story and sales website, your FDD should be structured properly and you should have a rock-solid legal foundation.
You have a franchise sales process. You have a process and know how to sell franchises in a way that engages prospective candidates and closes deals with quality presentations and marketing materials, franchisee validation and strong numbers.
You’ve engaged with brokers. Your franchise offering is positioned competitively and you know how to work with brokers to grow your brand.
You’re committed to improvement. As a franchisor, you attend industry conferences, continuously develop your brand, strive to learn about your industry, prioritize franchisee validation, and work to improve your KPIs and grow your brand.
By strategically choosing the right time to work with an FSO, you can increase the odds of achieving growth while positioning your brand for future success as your brand matures.
What do FSOs look for in a franchise brand?
Reputable franchise development companies typically have high standards. Even if you think your brand is ready to work with an FSO, a good franchise developer might not agree. Before engaging with an FSO, make sure your brand is seasoned and positioned for success.
Management Team
A franchise system’s corporate management team can make or break its success. Because of that, franchise developers value brands with growth-oriented management teams. Good FSOs often look for an internal culture that is committed to franchisee success and focused on training, support, validation and future growth.
Brand Positioning
Another important quality FSOs look for in a franchise brand is its brand positioning and income potential. By evaluating a franchisor’s industry position and FDD, franchise developers can gain a clearer picture of a brand’s financial standing. Typically, FSOs look for brands that offer a strong ROI.
Item 7 Estimated Initial Investment ROI
Item 7 of the FDD includes legally mandated disclosures about a brand’s estimated initial investment. This is the estimated range of costs that a franchisee must pay to open and establish their franchise business, including reserve capital, build-out, equipment and all other expenses related to launching the business. When evaluating this disclosure item, franchise developers often look for indications of a solid ROI relative to a brand’s income potential.
Item 19 Unit Economics
Item 19 of the FDD includes disclosures about your franchise brand’s financial performance representations. Typically, these numbers are based on historical financial data, including income and gross sales, from the brand’s corporate and franchised outlets during the last completed calendar year.
These numbers are important to FSOs because, when structured correctly, Item 19 can tell an important story about a franchise brand’s unit economics. Relative to other factors like industry and cost per transaction, a brand’s unit economics can help a franchise developer understand whether a brand is positioned – and capitalized – for growth.
Capitalization
Franchisors must have the right capitalization to support growth before working with an FSO. This can sometimes be complicated by the fact that revenue from the initial franchise fee might not be available due to the cost of working with an FSO.
Because of that, FSOs usually look for brands with enough available capital to invest in the franchise sales process, fund lead generation, improve the brand’s website and marketing materials, fund franchise sales activities, and onboard and train new franchisees after the FSO’s fees are deducted.
How much does it cost to work with an FSO?
The cost of working with a franchise developer varies from organization to organization depending on their fee model, level of expertise, and the quality and types of services they provide. However, some FSOs will charge a monthly fee to manage your franchise sales process.
FSOs may also ask that franchisors commit to covering the costs of franchise sales-related activities, including but not limited to:
A monthly marketing campaign budget
The franchise sales process, including web design
Conference attendance
Conducting discovery days
In addition to those costs, some FSOs charge a percentage of one or more of the following based on franchise sales:
Initial franchise fees
Royalties
Marketing startup costs
Potential equity
Working with an FSO can be expensive, and deciding whether it’s worth it depends on your goals and the benefits you receive in the form of franchise sales. Because costs can vary significantly between FSOs, be sure to ask franchise developers about their fees before agreeing to work with them.
Working with a Franchise Sales Organization
Choosing to work with an FSO is an important decision that can only be made after evaluating your franchise brand’s goals, growth strategy, positioning and finances. Franchise development companies aren’t right for every franchisor at every stage of their journey, but a good FSO can be a game-changer for brands that are properly positioned and capitalized for growth.
However, it’s important to remember that FSOs are not a complete solution for franchise sales challenges. A good franchise developer can have a significant and positive impact on your brand’s growth, but the responsibility of scaling your franchise system ultimately falls on you as the franchisor.
By adopting the right growth mindset, proactively developing your franchise and competitively positioning your FDD, you can ensure that your brand will appeal to prospective buyers as it continues to grow over time – whether or not you decide to work with an FSO.
Ready to grow? Contact us to learn how we can help season your franchise offering and attract qualified franchisee candidates.
