Advantages Of Franchising

Advantages Of Franchising

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 to Franchisor and Franchisee:

Raise Capital:

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 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.

Motivated Personnel:

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.

Optimum Efficiency:

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.

However, if the franchisor does not have the right training programs and systems to make the franchises efficient, this could work the other way round and damage the brand and its reputation.

Rapid Expansion:

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.

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. Hence you will have to do it right from the beginning to gain maximum benefit.

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.

Securing Locations:

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.

Market Dominance:

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.

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.

Maximum Income:

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.