Advantages of a Franchise | Sample Business Plan

Advantages of a Franchise


 

If you are looking for a way to venture into business independently, franchise ownership offers a great opportunity, especially for those that are risk adverse... Although I do believe that is a paradox! - Aren’t entrepreneurs the epitome of risk taking behavior? Okay, I got side tracked for a moment in an attempt to be humorous… and this folks is why I am NOT a comedian! Du-dum-dum- In short, this article will outline a few advantages of owning a franchise, and there are many.

 

Training

 

A majority of franchises offer training to bring their franchisee’s up to speed with how to run their company. Training is often rigorous and ranges from a few days to a few weeks, pending the industry and nature of the business. This not only ensures that their new partners have an in-depth understanding of how to take care of day to day operations, but it also ensures uniformity in service and product offering. A franchise usually does well because there is a system in place, and they want their franchisees to succeed with a full understanding of their system. If you were to pursue an independent venture, your training would be a result of spearheading day to day operations on your own and the learning curve can be lengthy and painful!

 

National Advertising

 

While most franchises charge a small percentage (as little as 1%) of gross sales to franchisees for advertising, it is a benefit to all. An independent business will allocate 2-10% of gross sales to marketing and advertising, but this doesn’t include their overhead (employees within their marketing department, facility, etc.). It should be noted that this broad range depends on the particular industry, with the auto industry on the lower spectrum and packaged goods on the higher end. In short, the franchise is able to enjoy a decent advertising budget by charging minimal fees to their partners; which is another great attribute when considering the financial scope of a start-up.

 

Brand Recognition

 

As a result of national advertising campaigns, franchises are able to build brand recognition; another great advantage of buying into a franchise. Many franchises are national chains and they have established their presence throughout the country. This makes marketing much easier and much cheaper; you won’t have to push so hard to spread the good word about your product or service- which definitely helps, especially from a financial perspective of starting a business as you will begin to build profits much faster than if you were to start out fresh. Additionally, you will have a loyal customer base just because they are already familiar with the product or service and have established trust based on prior experiences (presuming they didn’t have a bad experience of course!).

 

Proven Business Model

 

This aspect is a critical area of consideration for those that are adventurous enough to become an entrepreneur, but weigh the risk factor considerably. Independent businesses confront a high failure rate, but a franchise has already worked out the “bugs” and implemented a system that works; so failure rates are reduced significantly. In general, a successful franchise has proven that it has a product or service that fulfills customer wants (or needs), it has a reliable system for accounting, and they have a system in place for successfully selecting business sites/locations. There is an art to this science and a franchise offers insight that an independent business owner would either have to learn from experience (which can be expensive) or have to pay for (which can be expensive). It all comes down to cost and a franchise allows owners to capitalize on the experience and knowledge that has already been acquired and refined without having to “go it alone.”

 

Economies of Scale

 

The final advantage is economies of scale. In business there is a lot of power in numbers and when an independent owner may only need 2,000 hamburgers a week, a franchise will buy 100,000 a week. This is an effective way to cut costs and this allows all franchisees to benefit from bulk purchases that may have been negotiated at a reduced price due to the quantity (facilitating quantity discounts), but also the ability to capitalize on the distribution of those goods. To elaborate on economies of scale, a shipment of 2,000 hamburgers may cost $0.20 per a burger to ship, but if 100,000 are shipped it may only cost $0.05 per a burger to ship. This can lead to substantial savings when comparing the purchasing power, and ability to capture economies of scale, for an independent business with that of a franchise.