FOR MANAGERS: Companies to Watch

BY ROBERT FREEDMAN

Avalar Real Estate & Mortgage Network, Rohnert Park, Calif.
www.avalar.biz

California export

Franchise sweetens deal with recruiting incentives.

From his base in the rich wine country of Sonoma, Marin, and Lake counties in California, Chuck Scoble has begun exporting to other states a concept that he hopes will make a big market splash. And he’s not talking about Zinfandel.

Armed with a franchise approach that gives brokers and associates a share of company revenue in return for recruiting salespeople, Scoble has started building a residential real estate network that’s breaking out of its California roots.

Under the incentive program, Avalar Real Estate & Mortgage Network distributes to brokers and associates about 1 percent of the revenue generated by each salesperson they recruit. Brokers and associates also are paid a small percentage from the income of each salesperson that their recruits bring on board and from the recruits of those recruits, and so on. The income percentage diminishes with each “generation” of recruits and stops at the seventh.

Starting from one office in the mid-1990s, the franchise now has a dozen companies in California and Arizona and is in talks with brokers to add affiliated franchisees in Illinois and Florida.

On its face, the recruiting program is much like the incentives that underlie the growth of Keller Williams Realty, based in Austin, Texas, and Exit Realty Corp. International, the Canadian franchise, whose U.S. operations are based in Burlington, Mass. Both of those companies offer supplemental broker and associate income based on revenue generated from sales recruits. But the Avalar program has a character of its own, Scoble says.

First, the recruiting incentives at Avalar are distributed to brokers and associates from a pool of funds set aside from revenue generated from the franchise’s royalty income. This way, brokers and associates receive incentive payments regardless of company profitability levels.

Second, the system incorporates a feature that Scoble calls compression. If recruits leave the company after a certain period, the next-generation recruits move up the chain, generating supplementary income at the same percentage rate as the recruits who left.

Other incentive features at Avalar include

• A breakage pool. If funds remain in the royalty funds pool after supplementary income has been distributed, the extra funds are divided among “senior” and “executive” recruiters, who are brokers and associates with at least eight and 20 recruits, respectively, to their names.
• A competitive franchise fee. Avalar’s starts at $4,400 (and can go up to $12,500). That compares to an average fee of $16,654 among 21 franchises participating in a franchise survey (“Is it time to go franchise?”, October 2002, page FM1).
• No-cost contract renewals. Renewals come with five-year terms.
• A guarantee. Brokers are entitled to 90 percent of their fee if they want out of the franchise within the first year.

The company also permits brokers to retain their company name and their commission structure. Avalar franchises a mortgage brokerage operation with the same recruiting incentive.

So far, of Avalar’s nearly 500 associates, more than 100 are earning supplementary income. For some, that income tops $100,000 a year.

Says Scoble: “The earnings growth can be pretty phenomenal.”