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The benefits of franchising

Written by: Diarmuid Kieran

Article Overview: Overview of the benefits of the franchising business model

The benefits of franchising

Buying a franchise is an option that many people looking to manage their own small business should consider, as there are a number of advantages to joining this industry.

The main benefit if you become a franchisee is that your business will already have in place the knowledge and experience of the franchiser that has enabled it to expand, which provides each franchise with a solid business platform.

The brand name will be known across the country or region and potential franchisees can also check the success of the franchiser and its reputation before making a firm commitment.

Systems such as product pricing, recruitment and marketing will be tried and tested as any early mistakes will more than likely have been ironed out. Therefore, this reduces the risk of failure compared to someone starting their own small business separately.

Financing the new business will be easier for the majority of franchisees, as banks will take into account the franchiser's reputation when it decides whether to lend money.

Although business processes are set out by the franchiser, it gives franchisees the power to run the franchise in a specific area, including promoting it, managing sales and expenditures, making decisions on hiring and firing people and many other tasks.

The franchiser will be invaluable when franchisees encounter problems. This is because it should be able to provide the necessary technical support and have qualified staff that can give advice on how to improve sales and dealing with staff problems.

In addition, as well as providing training programmes for franchisees before they open their business, many franchisers will offer staff training and ongoing services so that franchisees can benefit from new technology and keep up-to-date with financial and personnel regulations.

Obtaining the products is much easier for a franchise business as some or all of them will be provided by the franchiser and it will have other suppliers in place, if necessary, to deliver the goods. Franchisees can often take advantage of bulk discounts.

Any promotional offers, usually discounts, which have been successful will be used across all franchises enabling them to benefit from the probable increase in customers it will bring.

If franchisees would like to sell their business at some stage, the franchiser could have a new buyer lined up quickly, as opposed to franchisees having to find someone to take over.

Franchising offers people a mix of management responsibility and business security and there are franchises available in a wide range of business sectors.

Copyright Adfero 2006

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Related Forum Posts
Any franchising horror story? - I am always writing about the benefits of franchising in this forum. Although I don't own a franchise I do believe in franchising is a great business model. Do any of you have horror stories to share about franchising?
Re: STARBUCK - Licensing vs Joint venture - [quote="bmueller47":czemqiul]I often come here to learn something, therefore I would like to know what is the real practical difference between licensing and franchising. I might have an answer, but you are at the forefront with your knowledge.[/quote:czemqiul] Very good question. Although I am not an attorney, I will do my best to highlight what I believe are the main differences between franchising and licensing. First, here in the US, franchising is very regulated buy the Federal Trade Commission. Not anyone can franchise, you have to go through various steps. Licensing doesn't come with as much regulation. The franchisee can expect to have a very close relationship with his franchisor. In most cases, the franchisor will offer training, and on-going support. The franchisee will be able to use the franchisor's copyrights, trademarks, logo and so on. The franchisee is like the public face of the franchisor. This is I think the high value of franchising. Also, a franchise agreement will most likely define territories. The relationship between the licensee and the licensing company is much looser. In most cases, the licensee won't be able to retain the rights to trademarks, company name, etc and will have to establish his own identity in the marketplace. Licensees rarely get a protected territory which means you next door neighbor could be your competitor... Obviously, franchising is more expensive than licensing because you get a certain "safety". Again, franchising is highly regulated whereas licensing is not. There are many other differences between franchising and licensing but I think these are the main ones.
Setting Fees - Determing what to charge for the franchise fee, royalty and advertising contributions requires a clear understanding of the margins involved in your business, the goals of your business, and the benefits attributed to the franchise. In order for franchising to be successful, there must be a mutually beneficial relationship for all parties involved: franchisor, franchisee, vendors, and the consumer. Keep in mind your risk/reward and that of the franchisee.
Re: Kevin's Case Study #6 - Marketing an information resource? - [quote="Evan":3ndb7usp]Hi Sebastien, I'm wondering about two things: 1) What is your current revenue model? 2) Why would franchise owners choose to sign up with you over the lead generation companies? Is there some kind of quality control certification that you could award them to say that they are a World Franchising certified franchise? I'm not clear on what benefits a company seeking to franchise would really get from your site beyond the lead generation component.[/quote:3ndb7usp] Hello Evan, 1. We currently make money from what you may call lead generation. Franchisors pay us a fee to be on our websites and in our top seller franchise guides. We also generate money from other avenue; mostly by selling hard-to-get information about franchising (UFOCs, etc...) 2. That's exactly what I'm trying to answer.... I want to get away from the lead generation perception. I want to be seen as a good information resource, which we are. I have started to take the association angle and I am now looking to provide great benefits to our Members (used to be called clients). I think I'm on the right way. I made a lot of progress the last couple days.
Franchising is not a "no-cost" expansion model - Don's point above was right, and, if he only lost $5,000 getting into franchising, he got off very cheap. Getting into franchising is a serious business. We estimate that you need [u:32pu99ec]at least [/u:32pu99ec] $50,000 to do it right -- and it can cost five times that much for an aggressive expansion plan. Jim was right on. If you choose to franchise, you are getting into a new business -- the business of selling and servicing franchises. Mark


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