Some business owners go into franchising because they think its a get rich quick scheme but while franchising could be incredibly rewarding financially, it might not necessarily be the best fit for your business. Before moving on, let’s get one thing out of the way first - while almost every business could be franchised, not every business should be franchised. Before even analyzing whether your business has the technical aspects to take on franchising, ask yourself two simple questions first.
Can Franchisees Make A Rewarding Living?
Franchising is based upon an upfront franchisee fee being paid with subsequent royalties (normally a percentage of revenue) due on a regular basis, with these payments paid by the franchisee to the franchisor. In comparison, an independent business doesn’t have these additional payments to meet. So by default, this means a franchise business model should technically be more profitable than an independent business. If you cannot ensure there is a potential scenario for your franchisees to not just make a living, but a financially rewarding one too, put franchising on hold until you can offer better return on investment for franchisees.
What Is The Potential Number Of Franchise Units That Could Be Opened?
The next thing you’ll want to do is to check for your business’ franchise potential. If your business belongs in a niche category where limited franchise units can be opened (i.e. 5-10), perhaps franchising isn’t the best option moving forward. From a cost perspective, it might not be efficient or effective because you will only have a limited pool of franchisees to draw royalties from to support the system, which in any case might still not be enough to achieve sustainability. Additionally, over-saturation with might lead to franchisees becoming competitors with each other, or even you yourself in the same market and diluting each others profits.