Franchising requires less capital than other growth methods.
One of the key benefits of franchising your business is that it allows your company to grow with capital invested by individual franchise owners. For the majority of FranSource clients, the investment required to franchise their business is recouped through the sale of the first two to three franchises.
In today’s marketplace, the window of opportunity for a new or unique business concept closes very quickly. Another benefit of franchising your business is that it permits multiple units to be opened simultaneously, gaining a foothold over would-be competitors.
Franchising your business enables your company to open additional locations more rapidly. Having multiple locations in a market increases your company’s competitive advantage over similar type businesses.
Franchising puts a ``business owner`` in charge.
Franchisees are responsible for overseeing and/or managing their franchised location(s). A new business demands a great deal of time, effort and sacrifice. A franchise owner is highly motivated to ensure their locations are operating in accordance with the prescribed business system.
Franchise locations may operate better and more profitably than company-owned units.
Another key benefit of franchising your business is the fact that a highly motivated owner is overseeing the business rather than a hired employee. With their capital at risk, franchise owners are much more motivated to ensure the franchise business performs at the highest levels.
Greater buying power
Franchisors that purchase products and services for their franchise network can often negotiate volume discounts from vendors and suppliers. Sharing all or a portion of the savings with franchisees provides higher operating margins and a competitive advantage over similar independent businesses. This is a key benefit of franchising that is often overlooked.
Increased brand recognition
As additional locations are opened, name/brand recognition increases. In the United States, customer loyalty towards recognized brands is at an all-time high. Consumers typically feel more secure frequenting a business they recognize by name. For the independent business person, it has become difficult to compete against companies that have significant resources to develop and promote their brand. Franchising permits an individual franchise owner to benefit from the collective marketing power and growth of the franchise network, which in turn leads to greater brand recognition and competitive advantages for each individual franchisee.
Increased advertising and marketing budget
Franchisees may be required to contribute a percentage of their gross sales (or a set fee) to an advertising fund administered by the franchisor. This enables the franchisor to advertise on a regional and/or national basis for the benefit of the franchise network.
New revenue streams are created.
Franchise companies may earn additional revenue from various sources, including:
- Initial Franchise Fees
- Franchise Royalty Fees
- Advertising & Marketing Administrative Fees
- Services provided to Franchises
- Sales of Products & Supplies to Franchisees
- Training Fees
- Sales of Promotional Items
- Rebates from Suppliers