Advantages of Franchising Your Business:
Every business comes with its own risk and reward structure. The market dynamics keep changing, taste and preferences of consumers play a vital role, the economic and demographic situation will also predict the success of the business. It helps to grow at a more rapid pace compared to any other business model. It is therefore very important for the business owners to take a calculated risk. Advantages of Franchising and licensing your business can be a great combo to expand. Advantages of Franchising examples such as a McDonalds or a 3M franchise have shown how effectively they have taken Advantages of Franchising in international business becomes easier, faster and less risk with local partners supporting their brands.
Advantages of Franchising
Today’s marketplace changes very quickly, often if you don’t move quickly on expanding a concept, someone else will. The window of opportunity will close, and you just miss it. There is no other way to grow as rapidly as franchising allows. The biggest advantage of franchising your business in a country like India, which is so geographically diverse, is the speed of expansion. It is often seen that communities, friend circles, social circles, and everybody catches upon a franchisee that they see within their proximity.
Franchises make money in a number of ways such as the following:
- Franchise fee.
- Franchise royalties.
- Equipment sales.
- Supplies, materials sales.
- Sales of Services.
- Property Rental.
- Rebates from vendors of equipment and supplies.
Achieve Optimum Size:
Maximum profits are realized by getting very large, by achieving a certain scale as there are few impediments to growth through franchising, it offers the opportunity to have 1000’s of units throughout the world, and no other business expansion model can offer that. However, the risks of franchising also bring other challenges to achieving this optimum size.
Many outlets/stores help because franchises tend to grow rapidly, they tend to locate many units in a given market and essentially squeeze out the competition. A franchise can do extensive advertising in a given market because the cost is spread among many units. This combination of having many high-profile locations with large advertising budgets is a competitive advantage that can’t be overcome.
Advantages of Franchising to Franchisor:
Capital is always scarce in growing a business. In franchising the capital needed to expand the business is provided by the Franchisee. It is the classic case of using OPM or other people’s money. Hence, raising capital is considered one of the most important advantages of franchising.
Many Startups often contemplate other forms of raising capital in the initial stages. They give up precious stakes of their companies at very low valuations. Going through a VC or Angel Investor vs Franchising is a classic debate in which franchising wins when the owners do not want to part with equity in the early stages. The difficult part though is to generate enough initial capital to start franchising and supporting the initial franchises.
Trained, motivated management is part and parcel of franchising. It is difficult to find and keep good experienced managers/employees, who are so necessary to grow a business. With franchises, you have people who are well trained in the franchise systems. Also, some of them are motivated because of the risk of investing capital. Hence having entrepreneurs who have their own skin in the game is a huge advantage of franchising your business in India.
Franchisors main concern is the franchisee’s top line. This reduces the scope of involvement in day-to-day management and can further concentrate on the core business and the expansion model of a business.
Development of Advertising Materials:
Most franchisors require that the franchisees pay an ad royalty to the company. Hence, these monies are pooled to make top-quality advertising materials for the franchisees. Again, it’s the advantage of spreading the cost over a large number of franchisees so that everyone benefits.
Advantages of Franchising to Franchisee:
The biggest advantage for a franchisee is brand recognition. It takes time to build an image for your brand and get customer base. Franchises have well-established customer bases built in. This helps in brand recognition and gain trust from people who already know what your business is into and what they can expect. This is a huge advantage as it saves time and ROI becomes faster compared to starting your own company.
Low Risk of Failure:
Franchises have a lower failure rate. Many who do not have the risk appetite when it comes to getting into business. This is where franchising helps an upcoming entrepreneur. When an entrepreneur opts into a franchise, they’re joining a successful brand, as well as a network that will offer them support and advice, making it less likely they’ll go out of business.
Profitable, Franchise units tend to be better run, therefore more efficient and profitable than company-owned units, for the simple reason that the Franchisees capital is at risk and they tend to be very motivated.
Great Buying Power:
A large number of units allowed by franchising enables the company to buy for the entire system and at great savings to the individual franchisees. So, this greatly enhances profit margins and gives the franchisees a very strong advantage over all competitors.
As a franchising system grows it begins to take on an image in the marketplace of size and success. Although, landlords like to have well known, successful Franchises in their shopping centers. It’s simply much easier to secure great locations as a franchisor than it would be for a non-franchise business.