Considering buying into a franchise? Then, it is essential to be aware of the advantages and disadvantages of being a franchisee as presented in this infographic. Arming yourself with this knowledge will help maximize your potentials as a franchisee and will save you from costly disappointments and mistakes while running your business.
The advantages and disadvantages of being a franchisee
- Start with an established business model. To you, this translates to a ready customer base that will patronize a brand they have already come to love. There’s no need to experiment about what works or not because everything is laid out for you.
- Less initial investment. Some franchises cost just a fraction of what you would normally spend if you start from scratch. Building a car wash business on your own for example, may cost anywhere from $700,000 to $1,000,000, while a car wash franchise only costs a fifth of that amount.
- Ongoing help, training and support. Franchising companies want to ensure that their formula for success will be replicated in each of their franchisees. Thus, they offer help, training and support when you ask for it or whenever they deem necessary.
- No overlapping of territories. Interested franchisors are aware that overlapping territories affect the performance and profitability of their franchises. They conduct researches about the population of a certain area as well as the demographics of target customers prior to awarding it to a franchisee. They also calculate probable sales according to the results of their research.
- More attractive to investors. When the going gets tough, startups run to investors for additional funds. When investors have to choose between an independent startup and a franchisee, they usually approve the latter. Why? It’s because a franchisee belongs to a system that has been proven in terms of profitability and stability. They know that franchisees have more chances of returning their investments.
- No need to shoulder all marketing costs. Experts say marketing expenditures average at 10% of a company’s gross annual profit. That 10% may be affordable to huge corporations, but not to a startup like you who’s still trying to recoup your investment. Not if you belong to a franchise. The franchisor only collects a small percentage for hiring marketing professionals, creation of promotional materials, advertisements, etc.
- Continuing innovation. Innovation is one of the keys to capturing the attention of modern consumers. You don’t have something new, you don’t have business. Yes, you can do innovations on your own, but that would mean investing a great deal of your time, effort and resources. A franchise, on the other hand, has a department dedicated to creating innovations for the benefit of all franchisees. Thus you have the advantage of continuing innovation without lifting a finger.
- Reduced chances of failing. Being an entrepreneur is filled with probabilities. Probably you’ll make it to the top, probably you’ll not. Probably you’ll make your first million or lose several millions. Not when you’re a franchisee. You lose, someone will have your back – your franchisor and fellow franchisees will come to the rescue.
- And in case you wish to exit, you have better chances of selling your business. Remember that a franchise has an established business model in place, making it a desirable acquisition for others who’d like to take the franchise route.
- Endless fees. Initial fees, royalties, marketing fees are the reasons why some people would rather build their businesses from scratch.
- Risks to the brand. No matter how careful a franchisor is, there’s always a chance that a franchisee can ruin the reputation of the brand. This, in turn can affect other franchisees and create a domino effect.
- Need to follow rules. One of the disadvantages of being a franchisee is the set standard of rules and regulations that he has to follow in order to maintain a good standing with his franchisor. To some, this spells lack of flexibility.
- Periodic inspections. Some people are uncomfortable with the knowledge that somebody else is watching them as they perform their daily tasks.
Do’s and Don’ts
- Do explore your options.
- Do search for a franchise that has a unique sales proposition.
- Do look for a franchise that offers a lot of flexibility.
- Do select a franchisor that takes customer satisfaction seriously.
- Do select a franchisor that you can build a relationship with.
- Don’t forget that you belong to a system.
- Don’t take comments and suggestions personally.
- Don’t hesitate to ask for help.
Indeed, there are certain advantages and disadvantages of being a franchisee. Take note, however, that the pros far outweigh the cons. Follow the do’s and don’ts for franchisees in order to find the right franchisor for your type of need and desires.
Want to become a franchisee? Check out the DetailXPerts opportunity. You can benefit from all the advantages and most, if not all disadvantages are kept to a minimum through our good business practices and franchise support.
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