Franchise Sales Outsourcing – Is Hiring an FSO Worth It?

In today’s bustling franchising world, Franchise Sales Outsourcing is gaining remarkable traction. More franchisors are opting to outsource their franchise sales needs to expert Franchise Sales Organizations (FSOs). While FSOs come with a hefty price tag, charging between $5,000-$20,000 per month and 40-50% of the franchise fee for non-broker sales, many also require a 0.5-1% cut of the gross revenue from each location indefinitely.

Despite these costs, FSOs are in high demand, often turning away more inquiries than they can handle. So, what makes FSOs so appealing? A significant factor is the role of franchise broker networks and the competitive commissions for top-tier sales reps. Broker networks typically claim about 50% of the franchise fee. For a $50,000 fee, that’s $25,000 gone. Additionally, franchisors typically pay commissions to internal sales reps who nurture these leads, along with costs for Google Ads, Meta Ads, and franchise portals.

Given these expenses, many franchisors have shifted focus to recurring revenue from the 5-7% gross revenue fees, rather than solely relying on initial franchise fees. This shift makes the FSOs’ fees seem more palatable, as they promise faster growth and market dominance.

FSOs excel in specific niches such as Home Services, Health/Wellness/Fitness, and Quick Serve Restaurants. It’s a volume game; FSOs prioritize brands with the potential to sell 10-50+ units annually over just acquiring more clients for management fees.

Should You Hire an FSO?

The decision isn’t straightforward, but leaning towards a ‘maybe’ or ‘probably’ is common. From an ad agency’s perspective, partnering with FSOs is beneficial as they typically have robust marketing and sales systems, leading to higher closure rates. As we’ve ventured into providing FSO services ourselves, we’ve seen firsthand how the right marketing and sales team can transform growth trajectories.

A stagnant franchise can suffer from low margins and reduced acquisition appeal. Growth is crucial for scaling a franchise brand from being worth a few million to potentially hundreds of millions. Whether you maintain an in-house sales team or outsource to an FSO, the primary goal is to grow and retain franchisees. Spending more for quicker growth might be a worthwhile investment.

However, once you’ve expanded to 100-300+ units, bringing your sales team in-house could be more cost-effective, as your brand becomes self-sustaining. Yet, if you add more brands to your portfolio, you might find FSOs beneficial again. After all, money loves speed.