Skip to main content

Are you Ready to Franchise your Business?

Considering Franchising?

Franchising is a great way to expand your market reach to areas you wouldn't be able to cover yourself.  Many companies turn to franchising when their business is successful enough to grow, but requires the support of good business-minded people who need to be as dedicated as you are to continue growth.

planning franchise territoriesSo, you have a successful business model with a proven track record. Your processes are well-documented and can be used as a turn-key operation. You are ready to grow your revenue by expanding your market and entering new territory.

This is a great position to be in, but there is one catch. You are now entering a new industry: the franchise world.

Like all other industries, franchising has its own set of lingo, legalities, and strategies. It has its own economy and there are many businesses built around the sole purpose of finding franchisees. There are experts in the field, as well as charlatans. Although you have a solid plan to be successful in your industry, the franchising world has a new set of rules that may not apply to how you normally do business.

What is a franchise? 

Franchising is the replication of a successful business model in a new territory.  People buy franchises with the intent to reap the same rewards as the original business did.  It is a business concept that has been used for many years.

Entrepreneurs and investors from all over the world rely on franchising to launch a business quickly, with all support and branding already in place. Many see the value in buying this "out-of-the-box" solution instead of spending their own time building the core of the business from scratch.

How do you franchise a business?  

To sell a franchise, you need to package your franchise like a product. A typical franchise offering has a set plan on how to run the day-to-day operations, how to advertise, and use of the companies logos and style. These elements are combined physically into a Franchise Operations Manual, which is often the end-product you are selling, along with peripherals like ongoing support, training, and use of proprietary software and equipment.

How do you get franchise leads? 

The method for obtaining prospects may have some similarities to how you currently attract leads for your business. However, you are targeting a different audience from whom you normally sell to.  Social media campaigns, digital ads like Adwords, and traditional print and radio advertising are some common methods you are probably familiar with.

There are a few unique strategies in the franchise world to obtain leads, such as brokers, portals, and expos. Franchise Brokers are specialized representatives that bring their clients to you.  Franchisors often use specific websites known as "portals" or "lead referral networks" that try to match prospects with suitable franchises. There are also a number of franchise exhibitions (expos) held all over the world.  This is where a franchisor can showcase to an audience of locals, and can talk one-on-one with prospects.

How much do you earn with your franchise business? 

A typical franchise gets revenue two ways:

1/ The initial franchising fee - this is a one-time lump sum payment made by the franchisee for the sale of the franchise system.  It varies from around $10k to $100k and covers the training and setup needed to launch the business, along with the access to the franchisor's use of logos and any other "secret sauce."

The money is used to pay back what you have spent in marketing efforts to attract the right prospect and to also handle the costs incurred setting up and training the franchisee's team.

2/ Ongoing royalties - This is normally a monthly percentage taken from the franchisees gross revenue.  6% is the industry average.  Royalties pay for the ongoing use and upkeep of your system, as well as continuous business support.  

Assuming your own business does about 20% net profit, you would need 3-4 franchises performing as well as your own in order to double your margin.  

What are the costs to franchising?

Your first costs are towards building your operations manual.  It should include every piece of information needed for a new business operator.  It is wise to have a firm go through your manual to ensure you aren't missing any important elements.   

Secondly, costs are incurred  filing your FDD (Federal Disclosure Document). Some states require it, some do not, but prospects and brokers may ask for it regardless. The states that require an FDD usually have a filing fee as well. 

Here is the list of filing fees by state.

After these initial costs, you will have an ongoing sales and advertising budget.  The exact number depends on what channels you are using and how quickly you want to grow. You can expect pre-qualified leads to range anywhere from $30 to $100 each.  The industry average for leads converting to sales is about 1 in 100, with newer claims going up to 1 in 200. 

You will likely want to budget about $4-5k in lead generation per month, for at least 6 months.  At this point you should evaluate how your franchise pipeline is running.  If you're not close to closing a deal by then, make some adjustments.  You can swap out different lead portals, try a new expo circuit, or sweeten the deal for brokers.

What is a business franchising firm?

Franchising firms go by many names; Franchise Sale Outsourcers (FSOs), Business Process Outsourcers (BPOs), Franchise Sales Support Firms (FSSFs) and everything in-between. For the most part, they each offer a similar service.  That is, they do the marketing and sales-cycle tasks to find suitable prospects for your franchise. They handle the dirty work of finding an qualifying leads before handing them over to you to close the deal.  This allows you to concentrate on your corporate owned entities without spending much time chasing leads yourself.

Keep in mind that FSOs are different from brokers. This article gives some good detail on the differences.


If your business is ready to grow in new markets, franchising is often a good solution to get operators to run with your model and have their own skin in the game. Selling a franchise is like selling a new product, but to a new kind of buyer, and through different channels from what you are probably used to.  You can learn the ropes and start selling on your own, or you can rely on another company to do the legwork for you.  Either way, your investment is often returned to you quickly, often as early as your first franchise sale.  
If you would like to learn how we at SparkTyde can help you launch your franchise sales process, contact us.


Anonymous said…
How much to file FDD?
Dave said…
The grand total for filing fees comes to around $7.5k. New York is the most at $750, while there are about 20+ states that do not charge anything. For the full list, go here