Keys to Successful Franchising: Why Franchise?
In my over three decades of experience as a franchise consultant, I am often asked “What makes one company a successful franchising entity while another fails?
Rarely is there a single reason for successful franchising versus franchising failure. Here, I will examine some of the many factors that can help a Franchisor put together a successful franchising program.
When a person buys a franchise, he or she is purchasing someone else’s “system”, trade name and learning curve. In return, the Franchisor receives money, typically both an Initial Franchise Fee and weekly or monthly royalties.
Successful franchising has been called the classic win-win situation. A successful franchising program must be structured so that both the Franchisor and the Franchisee flourish.
The benefits of successful franchising to the Franchisor are many, including:
- Potential Profit: One key to successful franchising is for the Franchisor to generate meaningful profits from their franchise operations, including the Initial Franchise Fee and on-going royalties or service fees. Other potential income streams include the sale of products, services or equipment, sales of international licensing rights, leasing real estate and/or developing financing programs. Without profits, the Franchisor cannot sustain itself.
- Fewer Managerial Problems: Successful franchising creates the most motivated managers in the world – Franchisees who have invested their money and time into their own futures.
- More Rapid Expansion: Few companies have the strength necessary to penetrate and dominate a new market quickly. Through successful franchising, a company can develop new areas using the financial and managerial resources of its Franchisees, rather than investing its own money, time, personnel and energies.
- Lower Capital Expenditures: The expense of expanding a business can be over-whelming. Through successful franchising, the Franchisor eliminates almost all of the costs normally associated with opening new locations.
- Lower On-Going Expenses: The fixed and variable expenses involved in running a franchise company are much lower than operating a similar number of company-owned facilities.
- Marketing Advantages: As the company grows through successful franchising, when local, regional and national campaigns take effect, all locations benefit, including company-owned units.
- Economies of Scale: The more locations a company has, the more buying power it commands. Using successful franchising to grow the firm also makes it easier to secure desirable sites.
For these and other reasons, thousands of U.S. companies have chosen to grow their operations through successful franchising.