Why do people invest in franchises, and does it even make sense? We’ll cover that topic today on Franchise city.
1. The first benefit is Economies of scale and buying power. If you are investing in a franchise with some type of consumables, supplies, or inventory and this could be hamburgers, cleaning solvent, vehicles or advertising, because you are part of a larger buying conglomerate you will get very low pricing buying in huge volumes for dozens or hundreds of franchisees. Beyond your daily consumables, there are also often arrangements with insurance providers, leasing agents and other industry connections that the franchise has negotiated using this buying power that could ultimately save you a substantial amount of money over being an independednt. Some people make the blanket statement that paying royalties is just not worth it, and we see that often in comments, and in some cases they are correct. But in a solid franchise when you analyze and compare the royalties you pay vs the savings in consumables — you should see an equitable relationship.
2 Success Road map. With every franchise you receive an operations manual. In that manual, are the exact systems, processes & procedures involved in building that business. Many of these manuals are hundreds of pages long and will cover topics ranging from how to acquire customers to how to answer the phone. Now if any of you have ever started a business, you will appreciate how much is involved in getting set up: from creating your branding, to the business workflow, marketing, social media, human resources and employee recruitment training and retention, Client acquisition and retention, a CRM system, billing, accounting and receivables, real estate, sourcing vendors, advertising, where do you advertise your your grand opening. The list never, ever ends for a small independent business owner. And keep in mind, these are all things that are outside your core competency of knowing how to cook the burger or swing the mop or paintbrush. So having this manual that has been refined over many years and franchisees will save hours, days weeks and months of headaches trying to get your own independent business running. And not that it is impossible, people do it, but it is far from easy. Now a large part of that success roadmap are the systems and processes so let’s look at that.
With exceptional franchises we will occasionally see independent companies actually signing up to become a franchise. So these are people already in the industry who own an independent shop and they buy into the franchise. This is a huge indicator to us; the franchise is good because this is a person who already knows the industry well, and yet they, as professionals see enough value to start paying royalties. And we often see this with gyms, converting from a private gym to a franchise, garages, painting companies, and others. There are franchises like property management that because of their software and capabilities, owners can more than quadruple the number of clients they had been managing on their own. And with gyms, garages and restaurants, don’t underestimate how difficult it is to have everything in place from the right branding to the right equipment or food, or appropriate pricing, advertising and promotions – as we mentioned previously there is so much to do and any of those things you don’t get right can take weeks to figure out. And the number one reason businesses fail is they run out of money because they didn’t figure everything out in time. Franchising gives you the manual and the ongoing support.
Another major advantage is the marketing and advertising. Most franchises will have you pay into a co-op ad fee, usually one for regional and one for national. That money is pooled from all franchisees and obviously great prices are negotiated for these national ads. Your franchise , again if it is a good one, has retained a top marketing firm that knows exactly how to attract customers and the best ways to drive people to your location. With service based brands you will likely have a company that generates local leads for you through trade sites, Google ads or review sites.
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