Franchising is a business model whereby a brand, the franchisor would expand their footprint of a proven concept to a network of franchisees. For better understanding, the two main players are:
The franchisor is a business with an established brand, intellectual property, and business systems. The business model, product, and systems must be scalable and teachable to new franchisees. If it’s a successful brand, chances are that it has been franchised.
A franchisee is a person or business that pays an initial fee and an ongoing share of profits to the franchisor for the right to do business under their name and use their business systems instead of having to build the business from scratch.
Think fast foods, restaurants, fuel stations, supermarkets, beauty salons, tire experts, service centers, the list goes on. The franchising market keeps growing year after year, which is great news for investors.
Most franchise businesses end up being successful for both parties involved because of the symbiotic relationship. The franchisee piggybacks on the already established brand and cuts out the tedious process of building a brand, while the franchisor reaps big from the contributions made by the franchisees.
Entrepreneurs and investors who want to start and scale franchise businesses could consider the below tips.
The endgame of joining a franchise is financial gain and growth. And a good franchise system should have the following:
- Effective business model that allows smooth integrations of franchisees
- A reputable brand image
- Well-established communications channels between franchisor and franchisee
- A good training program
The agreement of the franchise is legally binding and going against it often has its ramifications. By understanding the fine print, the business owner will avoid ruining the relationship with the franchisor. A premature breakaway might cause significant losses on the part of the franchisee.
Like any other business model, the money pumped in contributes to the success of the business. Determining what initial amount is needed to embark on the venture will help fend off any possible challenges. To be on the safer side, make sure you have used all financial knowledge available at your disposal. Involving attorneys and accounts in all the dealings will aid in proper financial planning.
Choosing the best location should be guided by matching the product and the demography of the area. Understanding the culture of the region will also help in situating your premises. The best tool to use is seeking guidance from fellow franchisees who have found success in new places. Try to replicate their strategies and see how well it works.
Good help is the backbone of a business. Depending on the industry the franchise is in, make sure that the staff has high skill levels. Franchisors are constantly incorporating new systems into the business, and making sure the employees are trained is the franchisee’s responsibility.
Motivating the staff should not be neglected, if the organization structure is flat, regular rotations will help boost morale.
Being part of a large organization will not make ends meet without putting in some work. Breathe life into the business by incorporating other marketing ploys with the already established ones. Find what works for the customers in the area and use it to the business’s advantage. Social media and billboard ads can be examples of reaching people close to the business.
To avoid the fate of other failed franchisees it is crucial to follow the initial terms of agreement. The franchisor has been in the industry for years and has proven that the systems used are profitable. Most franchisees want to enjoy the marketing and publicity while offering consumers something opposite to the brand.
If anything goes wrong the entire brand suffers; it affects both the franchisor and other franchisees. The franchisor has the right to terminate a franchisee’s license if failure to follow the system jeopardizes the entire organization.
The franchisor’s marketing and brand name will only bring the customer to the premises. Retaining customers within the local area will need excellent customer service. The customers are the reason why the franchise has grown. Like any other business, to boost revenue, the customers need to be satisfied and willing to come back for more.
Consumers enjoy supporting businesses that also support them. By taking part in the day-to-day dealing of the community, most locals will prefer promoting your business over others. The organization can;
- Sponsor activities for the children.
- Offer mentorship programs to the youths.
- Vend at the community events.
- Offer personal development opportunities to employees
Joining an already-established brand not only helps the business cut through the market with ease but also comes with an array of other benefits
- Proven business model. There isn’t trial and error when selecting a business model.
- Technical support. Franchisors offer all types of support to the franchisee to ensure they attend to the market with ease. Certain key areas of the business like marketing are already taken care of.
- Bargaining power. Being part of a large business plays a part in the purchasing power dynamics.
- Risk aversion. A large chunk of the risk a business could face at the inception stage is avoided. The risk of failure is averted.
- Solid customer base. An established market share comes as part of the integration.
- Profitability. High probability of the business creating high returns.
- Competitive edge. The business gains all the attributes that come with the franchisor, directly gaining an advantage over other newly established businesses.
Getting a franchise sounds great but there are negatives to getting into one. They include;
- Initial cost. Investing in a franchise might be costly depending on how big the franchisor is.
- Ongoing fees. A fraction of the business profit goes back to the franchisor along with a percentage to cover advertising costs and annual maintenance.
- Competition. The bigger the franchise the more other businesses want to be part of it. If the structure gets saturated, supporting all the franchisees might be hard. Some might end up being blindsided.
- Rigidity. As opposed to owning a business, in a franchise, there is no full control over how things are run. There is no freedom to make decisions on the range of products, marketing strategy, and pricing.
Overall, the franchise model is a low-risk way of starting a well-recognized successful business. The low risk often comes at a cost in terms of high initial investment and losing a proportion of profits through ongoing fees and loyalties. Weighing the pros and cons of being part of a franchise would help in coming up with the best action plan.
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