A business may choose to franchise for a number of reasons. They may be looking to catalyse growth, strengthen their balance sheet or leverage their brand to its full potential. While there are many advantages for the franchiser in entering into a franchising agreement, we take a look at why franchisees should consider franchising.
What Is Franchising?
When a company (the franchiser) licenses their brand and their expertise to an individual or company (the franchisee), this will often fit under the definition of a franchising agreement. One of the most famous examples of franchising is McDonalds. Rather than owning all of their restaurants around the world, McDonalds sells licenses to operate restaurants to franchisees. Franchisees pay an initial fee for getting things started, and they pay an on-going management fee too. McDonalds supplies all of the food; they spend money on marketing the brand; they spend money on developing recipes; and they help franchisees with management, accounting and human resources. Some research suggests that a franchisee will hit the ground running and experience far faster penetration, and a much higher success rate, because they can leverage an existing system that is proven to work – and also because consumers already recognise the brand that they are associated with.
Proven Business Model
Many founders think they have came up with a great business idea, but when they test it in the market the results are less than stellar. With franchising that risk is close to zero. When you buy a franchise you already know the business idea works, the brand works, and that there’s demand for the product. This is one reason why a franchisee may prefer opting for the franchise route rather than starting a business from scratch.
Marketing & Advertising
As a small business owner you would not have the luxury of being able to spend money on national advertising campaigns. But, when you’re a franchisee, you can benefit from them. A franchiser will usually pay a management fee – calculated as a percentage of revenue – which will go towards spending on central costs. The franchiser will then spend money on marketing if this is contained within the language of your agreement with them. From a marketer’s perspective, this is also much easier. When a franchiser is potentially representing hundreds of franchisees spread all over the country, they do not need to worry as much about geo-targeting – this will make advertising cheaper too.
Buy In Bulk
As a franchisee, you will usually have a powerful organisation behind you. Some franchisers represent hundreds, even thousands, of franchisees. Therefore when they are looking to buy anything – from advertising inventory to stationary—they will be able to negotiate good prices because they are buying in bulk on your behalf. You’ll then be able to take advantage of the savings that are offered. Having a powerful brand behind you also means that you will be asked to participate in promotions with other leading brands that you would not have the leverage to negotiate on your own.
