The Pro’s and Con’s
All growth strategies have their advantages and disadvantages and Franchising is no different. So, it’s important that you are aware of both sides of the story.
What are the Advantages?
Significantly reduced capital investment*: Whatever business you are in, expansion comes with a significant price tag. Whether it’s a retail or mobile outlet, sales office or even just a local sales force, there is a cost attached.
Advantage - Franchisees are funding the business growth.
Energy and Commitment: How hard do your staff really work? How committed are they really? Even the very best have their off days when they don’t give it 100%. It's a fact. It's human nature. It’s not their business they’re just employees…
Advantage - Franchisees have a huge incentive...it is their business. The harder they work the better off they will be...
Speed of Expansion: Levels of investment coupled with the physical amount of hours in a day will limit just how quickly any business can expand.
Advantage - Franchisees have a vested interest in driving their business forward....just as you would. Many hands make light work.
Personnel: How much of your time or that of your line managers is taken up looking after personnel issues – training, illness/holiday cover, assessments even disciplinary matters?
Advantage - is that your brand could not only benefit from levels of expansion which are financially and physically beyond compare but one of the most important and time consuming areas becomes the remit of the Franchisee.
Return on Investment: Payback times for any business investment are a critical consideration and before you engage in Franchising your business you need to have a good idea of what your ROI is likely to be.
Advantage - Franchisors benefit from two separate income streams.
1. The Initial Franchise Fee which is paid by a Franchisee – in return the Franchisor trains them how to operate the business, assigns them a sales area and commits to on-going support for the duration of the term
2. The on-going monthly Management Service Fee – a set percentage of the Franchisees’ gross turnover
Duplicating your Success: Probably the biggest advantage of Franchising is the fact that your Franchisees should be duplicating your success across the UK and even possibly internationally.
Advantage-Turning a local brand into a national one and increasing its’ value at the same time.
What are the Disadvantages?
Management Infrastructure: As a Franchisor you have a responsibility to support your Franchisees. Irrespective of the quality of the Training and the comprehensiveness of the Operations Manual they will have questions and queries about all aspects of the business. On-going….. And you, or someone in your business, needs to be available to help them. Not only is there a contractual agreement in place but an income stream at stake here too as it’s in the Franchisors best interests to help the Franchisee’s business flourish as the larger it grows the more they return in the form of the Management Service Fee.
Consultancy: Most businesses don’t have a full contingent of the necessary skills required to operate successfully in-house. It’s just too expensive. So, when the Franchisee network needs a particular type of input - IT/Marketing/Operational – the Franchisor needs to buy it in from consultants on a project by project basis. Forecasting for this can be difficult.
Workload: Although they may have a large and growing franchise network a Franchisor will still generate the vast majority of their income from their core business. It’s vitally important that they continue to focus on this without compromising what made the business successful in the first place or undermining the long term potential of the franchise network. Getting the workload balanced is critical to the success of both areas.
