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!
The collective buying power of a franchise - To learn more about this author, visit Ray Flores's Website.
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