The advantages to franchising are significant. They benefit from the franchisor’s experience and expertise, so they don’t have to “reinvent the wheel” in their own venture. Most franchise systems spring from a successful business that has been operated by an owner who is interested in expanding its reach. Thereby, the relative success and failure rate for a franchise versus an independent business has been very promising. (For many years, it was a widely held belief in franchising that franchise businesses experienced a failure rate of about 5 percent, while independent businesses had a failure rate of 30 to 50 percent.)
Benefits of Getting a Business Franchising
Lower Risks. Most business experts agree that a franchise operation has a lower risk of failure than an independent business. The statistics on this vary depending on the definition of failure. Yet, whatever statistics are used, they consistently suggest that a franchise is more likely to succeed than are independent businesses.
Established product or service. A franchisor offers a product or service that has sold successfully. An independent business is based on both an untried idea and operation. A great factor that will help you predict the potential success of a franchise is the length of time that the franchisor have been in successful operation.
Experience of franchisor. The experience of the franchisor’s management team increases the potential for success.
Group purchasing power. It is often possible to obtain lower-cost goods and supplies through the franchisor. Lower costs result from the group purchasing power of all franchises. To protect this benefit, most franchise agreements restrict the franchisee from purchasing goods and supplies through other sources.
Name recognition. Established franchisors can offer national or regional name recognition. This may not be true with a new franchisor. However, a benefit of starting with a new franchisor is the potential to grow as its business and name recognition grow.
Efficiency in operation. Franchisors discover operating and management efficiencies that benefit new franchisees. Operational standards set in place by the franchisor also control quality and uniformity among franchisees.
Management assistance. A franchisor provides management assistance to a franchisee. This includes accounting procedures, personnel management, facility management, etc. An individual with experience in these areas may not be familiar with how to apply them in a new business. The franchisor helps a franchisee overcome this lack of experience.
Start-up assistance. The most difficult aspect of a new business is its start-up. Few experienced managers know about how to set up a new business because they only do it a few times. However, a franchisor has a great deal of experience accumulated from helping its franchisees with start-up. This experience will help reduce mistakes that are costly in both money and time.
Marketing assistance. A franchisor typically offers several marketing advantages. The franchisor can prepare and pay for the development of professional advertising campaigns. Regional or national marketing done by the franchisor benefits all franchisees. In addition, the franchisor can provide advice about how to develop effective marketing programs for a local area. This benefit usually has a cost because many franchisors require franchisees to contribute a percentage of their gross income to a co-operative marketing fund.
Proven system of operation. An attractive feature of most franchises is that they have a proven system of operation. This system has been developed and refined by the franchisor. A franchisor with many franchisees will typically have a highly refined system based on the entire experience of all these operations.