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The collective buying power of a franchise

Written by: Michael Hemenway

Article Overview: The collective buying power of a franchisor results in getting good discounts for the raw materials. That, in turn, boosts up the profit margin of the franchisees.

The collective buying power of a franchise

People tend to buy a franchise business because there are several benefits of a franchise system. The fact that you don’t have to invent the wheel is perhaps the biggest benefit of them all. By cashing into the established brand-name of the franchisor, a franchisee can achieve success at a much faster rate than a stand-alone businessman. The comprehensive training and effective support that a franchisee gets also help him to avoid mistakes to some great extent. A franchisee is never alone when he is starting a franchise; the franchisor stays with him during the construction, procurement and opening phases of the franchised unit.

Another area where franchising scores over stand-alone business is the purchasing power of the franchisor. An individual owner sometimes gets minimal or no discount from the manufacturers and distributors. On the other hand, when a franchisor is placing the order, it’s doing that on behalf of all its franchisees. Naturally, the order amount is huge and so the manufacturers and distributors agree to lower their profit margin in order to get the order. The sheer volume of order (and that too at regular intervals) is enough to compensate whatever discount they are giving to the franchisor. The franchisees that brought the franchise business for sale offers, in turn, get the products at a much lower price.

That helps them in two ways. Firstly, if they sell the products/service at the same rate as in an individual business, the profit margin becomes higher for them. Secondly, if they decide to pass the benefits of the lowered price to the customers, they can sell the same product/service at a much lower rate than the neighboring mom-and-pop establishment. Hence, the number of footfalls increases in a franchised store, because everyone loves a good bargain. There’s another advantage that comes from the collective buying power of the franchisor – many manufacturers and distributors allow a line of credit to the franchisees of the top franchises in the business. But getting that for a greenhorn businessman is next to impossible!

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  Franchisors Moving Toward Preference of Multi-Site Franchisees
  Reselling Your Franchise

Article Tags: brand name, business for sale, businessman, comprehensive training, construction procurement, extent, footfalls, franchise business, franchise system, franchised store, franchisee, franchisees, franchisor, good bargain, intervals, profit margin, purchasing power, sheer volume, top franchises, two ways



Related Forum Posts
Re: Hot new 2008 franchises to look out for? - I think another factor to consider would be whether or not the franchise is just "hot" right now/trendy, and if it has any lasting power. How long would you wait before buying into a "hot" franchise?
Re: Hot new 2008 franchises to look out for? - [quote="BuzzAroundBooks":2pdo20ne]I think another factor to consider would be whether or not the franchise is just "hot" right now/trendy, and if it has any lasting power. How long would you wait before buying into a "hot" franchise?[/quote:2pdo20ne] I don't think there are any hot franchises! Look at sold it on ebay... It was a hot franchise for 2 years, rating in Entrepreneur top franchises and now it's going out of business....
What are the reasons why you would NOT buy a franchise? - Even though I'm a strong believer that franchising as a great business model, I would personally not buy a franchise. My main reason for not buying a franchise is that you're not your own boss. You take all the risks without really being in control of your business. To me that's the biggest drawback. What about you? What are the reasons why you would NOT buy a franchise?
What makes a good franchise? - I have yet to find a comprehensive list of what makes a good franchise opportunity. What are the main components that entrepreneurs should look for before buying into a franchise? Any ideas from our expert forum members?
Re: Franchising? Why pay franchise fees? - [quote:5ii0papt]Starting a franchise is like buying yourself a job and inheriting the "recipe for success". In addition, a good franchise in the proper location can translate into a license to print money... so why not?[/quote:5ii0papt] I tend to lean towards taking a more independent approach myself. This is because I like doing things my own way. There are plenty of success stories of small businesses that have dialed in there own concepts and marketed their business well... heck... that's how ALL franchisors are born. I see it as a toss-up really... relating to different personality types. Some investors don't want to think about building their own 'system', and would prefer to hit the ground running at whatever the expense - read franchise fees, royalties, etc.


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