Franchising has been and continues to be a popular and lucrative business model for many business owners. Hence, it is vital for a potential franchisee to have a balanced view of the advantages and disadvantages of franchise business.
Franchising has been and continues to be a popular and lucrative business model for many business owners. We have McDonald’s Ray Kroc to thank for starting the ball rolling, for franchising as it is known today, close to six decades ago.
Today, franchise business models represent 10.5 per cent of the total businesses in the United States and their employees account for 13.3 percent of the nation’s total workforce.
Yet, the above stellar numbers do not mean all franchises are fail-safe options. There have been franchises that have disappeared altogether. Hence, it is vital for a potential franchisee to have a balanced view of the advantages and disadvantages of franchise business.
Advantages of a franchisee:
Tried, Tested and Refined system
The key to a top performing say car wash business franchise model is its system or framework of processes, standards, equipment and technology that have been rigorously tried, tested and refined many times over. By the time the model is ready to be marketed; the franchise development team would have established and run a few of their own outlets successfully. They would have lived and breathed the business with close intensity and honed down to best solutions, procedures and standards that can withstand nationwide or global scrutiny.
Strength and Stability in numbers
There is strength and stability in numbers in that the more collaborators and users of the system, the more varied exposure and usage it gets, the more robust it becomes. The existing network of franchisees would have put the systems through its paces in various locations nationwide, bringing in another trove of information that can be gleaned for knowledge, lessons and best practices. Moreover, the more owners, the better the bargaining power when it comes to negotiating for funding, equipment and supplies.
Established trade name
To gain traction for a brand in a noisy marketplace takes time, ongoing effort and money, especially considering the many media choices and platforms a company can choose from to do so. From the get go, a sound franchisor would have in place, a marketing initiative, plan and budget to promote its trade name to its target audiences, locally and nationally. A single business owner, on the other hand, may find it hard to gain a similar reach on their own.
Disadvantages of a franchisee:
Over-promise and under-deliver on promises
Some franchisors are inclined to over-amplify their success track record and promises in an attempt to sway you to sign up with them. They may say they will provide you with intensive training, careful site analysis, and strong ongoing support and supervision. Yet, what you find out too late is that they only have a skeletal support network for their franchisees out in the field.
Contractual terms open to change
In some instances, the franchisor’s contract may reserve the right to alter their original terms or operations manual even after you have signed it. There have been instances in the past whereby a franchisor imposed longer opening hours down their network while another set a very low price for a product selected for a promotional campaign. Naturally, if your location has very little to no trade during the extended hour slots, you will naturally oppose. But, your legal obligations may work against you.
Royalty based system
As part of the agreement, franchisees usually agree to pay a regular royalty fee (on average 5-10 percent based on sales) to the franchisor. This is typically used to finance the home office to support the franchise system and franchisees. A large part of which goes to: equipment and systems maintenance and update; developing marketing strategies; identifying third party vendors and new sites, and field support. Over time, some established franchisees feel resentful to have to pay these sums, especially when they receive little value in return. Nonetheless, there are car wash franchises that charge just a flat monthly fee instead.
All in all, there are both advantages and disadvantages of a franchisee.
There are many solid reasons to being a franchisee as there are reasons not to go down that route. By knowing the advantages and disadvantages of a franchisee, you are going into your due diligence process with no false hopes and blind optimism to cloud your perception and ultimate decision about your long term and costly investment.
Check out the DetailXPerts franchise opportunity today!
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