The franchise business model is popular and globally proven for business growth and rapid expansion – of course, only when the subject business has developed proven systems, replicated its success at other location(s) and is scalable. An example of the potential of franchising for business growth, expansion and sustenance is MacDonalds. Established 78 years ago, MacDonalds through franchising has expanded to 37,000 locations, and in 119 countries. Below are the reasons franchising became the preferred business model most successful global brands leverage to expand.
1. Accelerated expansion and business continuity
Franchised brands have been proven to expand faster than solely owned businesses. By leveraging a business system which is simplified through documented procedures, training, technology and control; franchises have been able to usually attain audacious expansion targets. When franchisees are assigned Regional, Master or Area rights, they take a responsibility that employees usually would not, in ensuring an understanding of the local market and competitively satisfying it through the franchisors aggressive expansion strategy.
2. Minimum cost and liability free expansion capital.
Unlike your employees, your franchisees will make an initial payment (franchise fees and franchise set up cost) to leverage your business name, business systems and support to operate their businesses. On becoming a part of your business, they continue to pay you a percentage of their revenue (royalty), throughout the duration of your franchise contract with them. As the business becomes successful, leveraging your proven business system that delivers the success, and through your ongoing support, it is the franchisee who will be rewarding you with the monthly royalty payment, rather than being paid by you as an employee. However, this value would be guaranteed by your willingness to invest sufficient time and resources in building an attractive and proven franchise opportunity.
3. Minimized contingent liabilities through share of management responsibility with other investor/operators.
Your franchisees will not only invest their funds but contribute their sweat equity in running the day-to-day activities of the business in line with your provided business standards. Having his hurt money in the business, the franchisee would share your risk by investing his time and rolling up his sleeves, to see to the success of the business.
4. Reduced burden of managing a business with vast locations.
As you aspire to have your brand reach diverse locations of the country and even international locations, through franchising you need not worry about reliable hands that are capable of handling high level management and operational logistics oversight at the locations where you can obviously not get around to oversee. As most franchisors require, franchisees come into the partnership as owner/operators. This means that they are expected to also invest their time in operating the business.
5. Additional income stream and rewards for intellectual property.
Franchising creates more structured and annuity based income stream for your years of sweat in developing and building your business. Global franchise brands have successfully increased their income through licensing fees, royalties, franchise fees, increased margins from scale of products and services supply to franchise outlets etc.
6. Global Reach Potential
Again, by leveraging a business system which is simplified through documented procedures, training, technology and control; franchises find it easier to enter foreign locations irrespective of cultural and distance challenges through franchising. Through the Master, Area and Regional franchising rights, you can replicate and adapt your franchise model to other global markets.
7. Operational cost efficiency through shared costs and services
Budgets for costs such as training and advertising costs among others are usually shared among all franchise outlets, as the bargain with the vendors are made with the Area, Regional or National locations in mind. An example is a newspaper or billboard advert which reaches potential customers of the business across multiple locations of the brand.
Source: FBDS Nigeria publication
Photo credit: Indie Soul Magazine