1851 Growth Club: Honest Commission Model

Franchising has become a popular avenue for entrepreneurs looking to invest in a business. However, the role of brokers, consultants and coaches in the franchise acquisition process can be confusing, especially when it comes to the process of broker commissions and its impact on franchisees. That is the exact type of issue the 1851 Growth Club was created to solve by promoting ongoing transparency and education for all stakeholders in the realm of franchising.

“We've built our foundation on honesty and integrity,” said Nick Powills, CEO of The Growth Club. “I want to shed light on how broker commissions function. It's not about arguing whether brokers deserve commissions — they undoubtedly do. As you delve deeper into Growth Club, our stand is clear: they should earn commissions, but there needs to be transparency surrounding it.”

Often, aspiring franchisees seek guidance on how to buy a franchise, and they encounter brokers, consultants or coaches who claim to offer their services for free. However, the reality is that these professionals do not work for free. While they may not directly charge you a fee, their compensation comes from the franchisor, and it's essential to understand how this process operates.

Broker commission model

One significant limitation of relying on brokers or consultants is that they typically present franchise brands that are part of their inventory. They are unlikely to explore options beyond what's in their inventory because their income relies on closing deals. This means you might not be exposed to all available opportunities, limiting your choices as a prospective franchisee.

“To attract and compensate these brokers, franchisors began inflating franchise fees,” said Powills. “Originally, a franchise fee was meant to cover the costs for a franchisor to support a new franchisee until they were operational. However, these fees began to also encompass the cost of acquiring a new franchisee. In many cases, the franchise fee you pay is used to compensate the broker.”

As franchisors aim to attract more potential franchisees, they increase franchise fees to offer higher commissions to brokers. “The increasing fees mean that your initial capital for starting the franchise is affected,” said Powills. “We've seen franchisors grappling with this, trying to strike a balance. But it's crucial to understand that the elevated fees you're paying often go to the broker who introduced you to the franchisor.”

Brokers may encourage you to consider larger franchise packages, such as three packs, five packs, ten packs, or even twenty packs. This is because when the total cost of your franchise investment increases, their commissions also rise. While these opportunities may be suitable for some, it's essential to understand that brokers are motivated by the potential for higher commissions.

Franchise investment impact

Franchising can be a valuable asset, but it's crucial to be aware of how broker commissions can impact your investment.

“I believe the broker business model isn't inherently bad,” said Powills. “In fact, it can be a valuable asset, provided there are checks and balances to ensure the franchisee's best interest. As a potential franchisee, you're investing a significant chunk of your savings into a venture with limited control. We want to ensure you get maximum value from your investment, enabling you to scale and secure a prosperous future for your family.

Transparency is key in the franchising process. As a response to the challenges posed by escalating franchise fees, some organizations have taken steps to address this issue. For example, Growth Club has capped broker commissions at $20,000 to provide more clarity to franchisees about the costs involved in the process.

“Our mission is twofold — for franchisors, we aim to allocate funds efficiently and for franchisees, we're striving to reduce the franchise fees, offering you more operational capital at the start,” said Powills. “This positions both parties for greater success in the franchising journey.”