f you've started a successful business that's expandable into new locations and markets, franchising just might be the breakout strategy you're looking for. Franchising is an ideal path for companies that seek fast growth and it's also a bulls-eye if you're looking to keep the quality level and performance of each location at its best. According to Mark Siebert, CEO of iFranchise Group, a consultancy for companies interested in franchising, statistics indicate that locations operated by franchisees consistently out-perform company-owned locations in quality and revenue.
This is consistent with Stuart Mathis' perspective. As president of The UPS Store, he works with over 4,900 franchisees. We asked him on our radio show why UPS is utilizing franchising rather than opening company-owned stores. He confirmed that it's entrepreneurs that make each location a success. "They have an energy and passion that 'company men' just wouldn't be able to equal."
Franchisors are defined by three basic ingredients:
- the use of a common trademark
- the provision of assistance to the franchisee
- the collection of fees, royalties, mark-ups or other monies from the franchisees
Even if you could see yourself developing these key ingredients, franchising still may not be for you. There are distinct pros and cons.
Lets start with the cons: you'll make less money per location due to revenue sharing requirements with franchisees, so you'll have to grow the total number of locations to a substantial enough number to overcome the lower "take" at each location. Also on the downside, maintaining relationships with numerous franchisees can be a colossal undertaking. In fact, you can expect franchisee relations to become a dominant aspect of what you do everyday.
Don't get us wrong, though - franchising can work. The pros: franchising helps you enjoy rapid growth and higher quality per location. And don't forget that 40% of retail sales volume in the US, some $1.5 trillion, are coming from franchises - that's nothing to sneeze at!
An overview of how franchising works:
The franchisee typically pays,
- franchise fee average about $25,000
- royalty range between 4% - 10%
- co-op advertising fees range between 1% and 2%
- franchisor will often sell product to the franchisee to take advantage of pooled purchasing power of franchisor
Franchisor typically provides:
- initial training
- operations manual and systems
- ongoing supervision and support
- other support services as necessary
Franchising is a means of duplicating success, not creating success, but it can be one of the best ways to expand your business rapidly.