Why franchising in Australia’s real estate industry is upside down

By Carmel Kellett, Coronis

If you’re a real estate franchisee in Australia today the better your business gets the more you pay for the privilege of operating it. It’s counterintuitive.

I’ve spent 25 years engrossed in the machinations of the real estate industry in Australia; and ours is one dominated by franchised brands. While there’s plenty of compelling reasons to join a franchise (brand, resources, technology, a network of like-minded business owners) lately, I’ve been contemplating just how much longer franchisors will continue to rip off their high performers to fund their growth ambitions.

Penalising sales successes.
We have created a franchise industry that penalises success. The model is structured around franchisees paying a percentage of the office’s commissions each month. The more you sell, the more you pay the franchisor. Most also charge additional fees for IT, events, apps, marketing portals et al.

The system is not user pay; how much or little you access the franchisors people and its resources is irrelevant. The squeaky wheel gets the oil and more often than not the path of least resistance for the franchise is hosting another generic training session or creating one more marketing template.

In the franchise world, you pay for the privilege of selling. Your franchise fee is directly proportionate to your turnover. Sure, there are set thresholds you can attain that will afford you a discount on your franchise fees and negotiations can be hashed out with your franchisor, but the fact remains that the better you get the more you pay for your franchise despite needing them less and less. Success is expensive in real estate.

Growth funded by giants.
Materially, there is very little that differentiates franchise offerings except size. Central to the mandate of all real estate franchises in Australia is increasing footprint (more locations), “people share” (more agents) and office numbers (more shopfronts). Adding more and more franchisees each year is a driving metric; it’s inherent to the franchisors survival. The adage “growth is oxygen” is often bandied around.

In practice, recruiting offices is costly and time consuming. It is significantly more cumbersome to attract and rebrand more established, higher performing players so franchisors must bring in smaller, newer operators into the suburbs and communities they seek to occupy. The blue marlins are hard to land, but the prawns are plentiful.

Minor operators drain resources.
Due to less experience, lower skill level, and infancy in the business cycle newer and smaller businesses tend to usurp the majority of the franchisors focus: one-on-one support, set up and structural guidance, team training and marketing templates, ongoing check ins and follow up. Yet, those needier entities – the  newer, smaller and lower performing franchisees – pay less, while taking more from the mothership.

High performer needs.
The inequality here is that high performing franchisees don’t need as much of what the franchise offers. They don’t seek another cookie-cutter training in a stale conference room for their team; they don’t request more marketing templates that say the same thing a different way. Franchisee needs in 2021 have changed, and franchising has not kept pace. Today’s successful business owner seeks sustainability in their business structure; they seek improved systems with reduced costs, they want reliable diversified revenue, and an exit strategy.

A high performers franchise.
At Coronis, after 35 years of private ownership with 25 offices in south east Queensland, where we train and support our agents to outperform the industry (they earn three times the industry average) we’re launching a new approach to franchising for high performing offices. One that doesn’t accumulate costs as you accumulate greater success. One that values strategy and goals over time-wasting team training and a slight tweak to another signboard as the service offering.

Stay tuned.