We have seen experts’ statements about the real costs of franchising, but we should also know why the idea of not franchising our business can also be potentially costly. The cost of franchising a business can be as high as $150,000, but we may actually lose more when we fail to franchise our business. Granted, some businesses can’t be franchised and franchising isn’t for every businessperson. Don’t be misled, the initial fee of franchising is actually only the beginning of our investment. The initial fee will include typical components of franchising, such as contract agreement, sales materials, operation manuals, marketing plan and other franchise documents. Franchising is a more rigid type of business and it’s a kind of discipline of its own. One benefit we get from franchising is systemization.
Profitable businesses revolve rigidly around good systems. Function like operations, sales and marketing should be systemized to succeed properly in business. Unfortunately, it is quite likely that your business isn’t properly systematized and this is one of the common reasons of business failures. Franchising forces us to systematize our business and we are demanded to create a set of systems that allow us to operate our business. Franchisers need to find, train and support franchisees. They won’t be able to do this without a proper system. In general, franchising revolves around proven system, along with proper brand identity. By systematizing our business, it is possible for us to maximize the profit potentials. It means, we should consider how much we are losing by not implementing franchise-based systems.
Franchising is also about improved market penetration. Unless we are focusing only in a small town, it is quite difficult to penetrate the highly competitive market. With good franchising methods, it is actually possible to penetrate big cities. With good market penetration, our business will prosper and we will generate enough money. However, there is a constant battle among franchises for market penetration. Even so, we shouldn’t be deterred by the competition and we should consider how much are we losing by not grabbing at least a chunk of the market share. Franchise is about improved brand awareness and customers love familiarity. In fact, it is possible for consumers to move geographically, but remain faithful to specific brands. Without franchising, we have lower brand awareness and this equals to lower business value.
With franchising, we should have proper revenue generation. Good branding, market penetration and systems will result in improved revenues for our business. However, bigger revenues don’t always give us bigger profits, if we are unable to operate our business smartly. The franchise network may be able to deliver cumulative sales that are bigger even than the best operated solo business in town. In business, the more is often the better, although we provide products with lesser quality. KFC and Pizza Huts deliver much bigger profit, although their fried chicken and pizza may not be the best in the world. Franchisers could obtain significant profit by receiving initial franchise fee and annual royalties.