Franchising is being employed by more businesses and more types of businesses than ever before. Today, franchising is the chosen method for successful business owners who are looking to grow their concept quickly and without investment of more capital.
While franchising provides franchisees with a proven system and the support of a much larger organization, the advantages to the franchisor are even more significant. Here are a few reasons why:
Since franchisees use their own capital, the franchisor has virtually no investment at the unit level. Franchising allows companies to leverage off the assets of franchisees. As a matter of fact, you even gain a profit by collecting a franchise fee, every time a franchise is sold.
With every new franchise sold, you receive an Initial Franchise Fee as well as on-going weekly or monthly royalty from each franchisee. Franchisees also purchase their supplies from you, which provides you with yet another revenue and profit stream.
Since you are not investing any money to start each new unit, you have no financial risk.
The franchisor will not be signing leases, taking on financing, etc., and will thus expand with limited contingent liability.
By leveraging off of the time and efforts of each of its franchisees, the entire system grows much faster. Franchisors can grow the organization without adding any significant overhead.
Not only the Franchisor, but also each franchisee will continuously market the brand which results in faster brand growth and brand recognition.
All Franchisees contribute a small portion of their sales to an advertising and marketing fund that is collected by the Franchisor. Franchisor is able to advertise and promote the brand and the company’s products and services continuously without spending any of its own money.
As a franchisor, your main job is to support your franchisees and guide them to improve their performance. Your franchisees handle their day to day operation and only receive guidance from you.
As a franchisor you have full control of how your concept is run and what products or services are offered at each location.
As a franchisor your business expands without the need for you to hire new employees. Employees are hired and maintained by each franchise owner.
For the most part, the liability for acts of employees (e.g., sexual harassment, etc.) and for accidents at the location (e.g., slip-and-fall) accrues to the franchisee, not the franchisor.
As a franchisor, you are motivated to see your concept grow with each new franchisee. Furthermore, each new franchise provides a new revenue stream for you with little to no extra work. Therefore as Franchisor, by default you stay motivated to support your franchisees which leads to better and higher performance from your franchisees which in turn translates into faster growth and more profits for the Franchisor.
Since each franchisee has paid a franchise fee and has invested money to get started, he/she generally keeps his/her unit in better operational shape than if you were to open a new location and hire a manager to operate it for you. Furthermore, franchisee knows his/her local economic and political environment much better than you and he/she is able to promote his business locally better than you can.
Due to their investment, each franchisee begins committed and will remain committed and will be there for the long term. They are unlikely to leave any time soon.
Franchised stores generally outperform company-owned stores in terms of sales volume. This is mostly due to the owner’s higher commitment.
The system grows in locations you never thought possible. As you grow nationally, you will soon find suitable individuals that will be interested to start this business in other countries. Through an Area Developer or Master Franchise, the expansion internationally becomes by far less risky and happens much faster.