Is Now a Wise Time to be Buying Your New Franchise Business?

One of the more popular options for investing in and starting a new business is the franchise model. This is in some cases quite a lucrative way to get into the world of business because you do not have to launch and establish a new brand. In most cases the company will charge you a marketing levy as well as a royalty to promote the brand for you. Some very well known franchises have a well established name so at least you will have a fairly instant customer base.

There are a couple of major disadvantages with this business model though. Firstly the buy in price is normally substantial and the return on investment slow. It will usually take up to 5 years to begin to make any real profits. Secondly you are at the mercy of the marketing department as to how much and how often marketing is undertaken in your area. There are a few horror stories of franchise companies making all sorts of promises re: marketing in the lead up to a sale, then announcing a change of plans after the documents are signed and the money has changed hands.

We have a franchise business in New Zealand known as Mr Whippy which is a soft-serve ice cream truck business. My Whippy trucks are easily identifiable because as they drive around the neighbourhoods the trucks play a short passage from "Greensleeves" over and over again. This is played at quite a volume to let all the kids know that the ice cream truck is in the area.

The other day I was in one of the wealthier suburbs of Auckland. I heard the familiar refrain from Greensleeves and soon enough one of the trucks pulled up not far from me. It was cold with squally showers blasting through at regular intervals. Not exactly weather most conducive for sales of ice cream. I observed the driver and business owner as he sat and waited for customers who would fail to materialize.

He did not look very happy and Greensleeves played over and over again. After a few minutes he pulled out and moved to another spot a distance down the road. Same thing here - no customers. I really did feel for him.

When I got home I decided to do a bit of research into the startup costs for this type of franchise. To buy into the business it will cost you $140,000. You will pay 7% of your turnover in royalties and marketing fees. You are responsible for maintaining the vehicle and you can only buy your product from the franchise company. How many ice creams do you think you would have to sell to get a return on investment? Summer in New Zealand lasts for about 3-4 months at best so a large portion of the year is fairly unproductive. Interesting statistics to analyze really.

Compare the risk factors in franchise business with setting up an internet marketing home based business. Here are some of the advantages. Low startup costs, zero inventory, no vehicle maintenance or retail outlets, no huge administration costs such as legal fees and insurance and an extremely fast return on investment. The other interesting advantage with the online marketing business is that it never rains on the internet. Here you have access to a potential market of a billion and a half people and your marketing system works for you 24 hours a day, 7 days a week, 365 days a year.

And the best thing is you don't have to play "Greensleeves" to attract customers to your business!