The Business Analysts at Sparkleminds has listed the major Advantages of Franchising:
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 the capital is considered as one of the advantages of franchising.
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.
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.
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.
Achieve Optimum Size:
Maximum profits are realized by getting very large. Because 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.
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.
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.
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.