Franchising is the most dynamic method of business expansion ever devised. By franchising, many businesses have grown from a handful of units (or even just one unit) to hundreds or sometimes thousands of units within a few years. No other approach even comes close to the market scope and growth rate offered by franchising.
The franchise method of expansion is rich with potential for both the franchisor and the franchisee.
Advantages to the franchisor
By franchising, you can:
- Expand your business much more rapidly than if you grow only through company owned outlets.
- Because the franchisees contribute to an advertising fund, which you control, you can expand brand awareness without financial commitment on your part.
- The franchisees provide the capital for expansion, which allows you a high degree of financial leverage.
- Because expansion at the unit level is financed by the franchisee, your company takes minimal risk.
- Franchisees are far more motivated to maximize sales and profits than salaried branch managers.
- Franchisees are also more responsive to local markets than salaried managers, and typically can more readily achieve local public awareness of the business.
- Finally, franchisees are an important source of new marketing and product concepts, which can benefit your entire franchise network and increase the royalties you receive.
Advantages to the franchisee
- The franchisee buys into an already proven business concept – he does not have to “einvent the wheel”.
- Through training and manuals, he has a well-defined track upon which to launch and operate his business.
- As issues arise, he can turn to the franchisor for advice and expertise.
- As the franchise network expands, he receives the benefits of enhanced brand recognition.
- As the franchisees as a group gain experience, they can provide ideas and answers to each. other’s questions.
In short, the franchisee is in business for himself, but not by himself. Despite these powerful advantages, franchising, like any other business activity, does carry risks and requires significant effort. It is not without its challenges and headaches.