Franchising requires less capital than other growth methods.
One of the key benefits of franchising 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 is that it permits multiple units to be opened simultaneously, gaining a foothold over would-be competitors.
Multiple locations increase the company’s competitive advantage over similar type businesses.
Franchising puts a ``business owner`` in charge.
Franchising ensures that qualified “managers” are operating additional locations rather than employees. A new business demands a great deal of time, effort and sacrifice. Franchisees are motivated by their ownership of the business and the capital they have invested.
Franchise locations may operate better and more profitably than “company owned” units.
Once again, this is due to the fact that a highly motivated owner is running the business rather than an employee. With their capital at risk, franchisees are much more motivated than employees to perform at their 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 a portion of the saving with franchisees provides higher operating margins and a competitive advantage over other similar businesses. This is a key benefit of franchising that is often overlooked.
Increased name recognition
As additional locations are opened, name 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 to benefit from the collective power and growth of the franchise network, which in turn leads to greater name 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 in regional and/or national media for the benefit of the franchise network.
New revenue streams are created.
Franchisors earn revenue from many sources, including:
- Franchise fees
- Franchise royalty fees
- Advertising and marketing administrative fees
- Services provided to Franchises
- Sales of products & supplies
- Training fees
- Sales of promotional items
- Rebates from suppliers