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.
NO FINANCIAL RISK:
Since you are not investing any money to start each new unit, you have no financial risk.
LIMITED CONTINGENT LIABILITY:
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. The franchisor is then able to advertise and promote the brand and the company’s products and services continuously without spending any of its own money.
LITTLE TO NO ROLE IN DAY-TO-DAY OPERATIONS:
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.