Franchising is a popular business model that offers unique advantages over independent startups. What are the benefits of using the franchise approach? This guide examines the upside to franchising for both franchisees and franchisors.
Table of Contents
What is a Franchise?
A franchise is a business that licenses its model, brand, and systems to third party owners called franchisees. Some key aspects:
- Franchisees purchase the right to operate under the franchisor’s brand.
- Franchisors provide initial and ongoing training and support.
- Franchisees follow an established model for operations, marketing, etc.
- Franchisees pay fees and royalties for the licensed brand.
This allows rapid expansion and distribution of a proven business model with shared benefits.
Benefits for Franchisees
For those looking to start a business, franchising offers many advantages over independent startups:
- Tried-and-true business model with far lower failure rate than startups.
- Training and ongoing support from franchisor.
- Existing brand awareness and customer base.
- Banks more readily lend to franchisees due to lower risk.
- Some franchisors offer direct financing programs to franchisees.
Speed and Simplicity
- Quickly start operations vs slowly building a customer base.
- Franchisor handles many complex business tasks centrally.
- Avoid steep learning curve through training.
- Bulk purchasing power through franchisor networks.
- Shared best practices on optimization.
- Franchisor handles and subsidizes marketing activities.
- Be your own boss with personal investment at stake.
- Ongoing support still provided by franchisor.
For those seeking a simpler, lower-risk business startup, franchising opens doors not available to sole proprietors.
Benefits for Franchisors
Franchising offers advantages to business owners looking to grow their concept:
Expanded Reach and Scale
- Distribute branded locations rapidly across regions or countries.
- Local franchisees provide community connections.
- Franchisees invest their own capital into locations. Removes heavy capital burden.
- Local owners oversee day-to-day operations so less corporate staff needed.
- Franchisees are invested in their own success, incentivized to optimize.
- Grassroots insights from local owners.
- Standards and operating procedures ensure brand consistency.
- Tight feedback loop with franchisees spots issues early.
Franchising enables true focus on brand strategy while leveraging motivated local owners to drive growth.
FAQ About Franchising Benefits
Here are answers to some common franchising questions:
Do franchisees need prior experience?
No specific experience is required since franchisors provide training. But some basic business experience and management skills are preferred.
Can I buy multiple franchises?
Yes, multi-unit franchising allows one entity to purchase rights to open several franchise locations.
What support does the franchisor provide?
Franchisors offer an initial training program plus ongoing support like marketing, technology, capital, reporting tools, field observations, and more.
What fees and royalties do franchisees pay?
An upfront franchise fee, a cut of ongoing revenue as royalties, and advertising fund contributions are typical. Royalty percentages average 5-10%.
How long do franchising agreements last?
Typical franchise agreements range from 10 to 20 years. Renewal may be an option after the term expires.
Can I sell my franchise?
Yes, franchise resale markets exist. Approval from the franchisor may be required for any ownership transfer.
Weigh the Franchise Model for Your Goals
For both new entrepreneurs and established chains, franchising opens doors not available through independent startups. Consider if leveraging this powerful business model could accelerate your goals.