Business to Business Franchises: A Strong Growth Sector

This article appears in the Mar/Apr 2015 issue of Business Franchise Australia & New Zealand

 

When most of us think of franchising we think fried chicken, hamburgers and fast food; retail such as clothes, books, homewares, and other concepts that service our daily needs.

In 2014, the fastest growing franchises were in the health and beauty sector and the Franchisor of the Year was in food service – not surprising given about half of all franchises are in the food service sector. With the prevalence of retail and other business to consumer (B2C) businesses in shopping malls and strip precincts and advertised on radio, television and social media, you could be forgiven for thinking that B2C businesses are the only type of franchises available.

However, Australia has over 2 million businesses and its market is just 1.2 per cent of the global economy. There are 25 million businesses in India alone and probably over 100 million businesses across the international market. So the potential for franchise networks that service the business market is huge.

And this potential is being exploited not just here in Australia, but across the globe. With a growing number of businesses outsourcing their non-core activities to limit the number of employees under their direct control and to tap expertise only when it is needed, B2B businesses are growing strongly in the service, distribution and supply areas.

B2B service providers cover a huge range of services from software and bookkeeping to office cleaning and ink and toner cartridge supply. The franchises that are emerging to service the business market are growing rapidly in Australia and around the world.

B2B businesses include Pack & Send, Cartridge World, Clean Green Strata, Hardware2You, Jani King, Total Tools, Xpresso Delight, Fastway Couriers, and Leadership Management Australia (LMA), Mail Plus and IT businesses like Gizmo and Sacko IT.

These are only some of the many B2B businesses that service the small and medium enterprises (SME’s) and in some cases large corporations as well.

Less business hours and a more diverse client base

As they serve the business market, B2B franchises often operate normal 9 to 5 business office hours and usually just five days per week. This makes them more family-friendly than 7 day food or retail shopping centre-based businesses. It also makes B2B franchises attractive to prospective franchisees who want to balance the opportunity to build a business with time for the family.

One of the other features of many B2B businesses is that they are not limited by the location they operate from. They are often oriented toward outward bound, proactive sales activity to win new customers and increase sales revenue rather than just relying on a well–sited office location. Good B2B franchises have well developed sales tools to assist franchisees to identify and win new customers and use their websites and in some cases eCommerce as a business development channel.

As the location is not critical, some B2B franchises comprise smaller one owner/one operator franchisees who work from home. Overheads can be extremely low and the capital costs to buy in can often be less than $50,000.

For example, bookkeeping franchises like First Class Accounts, with over 150 franchisees across Australia, have franchisees who work with clients either remotely or at their clients’ premises. These franchisees do not need an office so most work from a home. This means that apart from minor travel, administrative, IT and stationery expenses, gross income does not need to be huge to ensure an excellent net income for the franchisee even after paying royalties.

While some B2B franchises may have an unlimited scope with customers across many business disciplines, others service a specific segment of the market.

Specialisation can serve you well

Clean Green Strata is a specialist cleaning and maintenance service franchise which focuses on servicing the common areas of flats, apartments and home units. While their end customers are the Body Corporate they are often referred by real estate property managers and other real estate service suppliers.

They are highly specialised and concentrate on a niche within the larger commercial cleaning market. Their name and reputation are well recognised within the specific market where they operate, but to the average consumer and sometimes the property owners they are virtually invisible.

From B2C to B2B

Some service-type B2B franchises also serve the B2C market and offer dual income opportunities.

One of the best B2B business opportunities today is Cartridge World which has been described by Entrepreneur Magazine as Number 1 in its class and in January 2015 was designated among the exclusive Top 100 franchises, joining the ranks of Subway, McDonalds, Supercuts and other global brands.

What started as a consumer focussed retail ink-cartridge refilling business in Adelaide in the 1990’s has evolved into the world’s largest recycled ink and toner franchise with over 1500 stores in over 50 countries. Cartridge World’s business model was originally based in retail premises that served only a walk-in retail consumer base with the franchisee refilling the ink and toner cartridges in the back of the store largely for domestic users.

Today its network of stores has evolved into a multi-national B2B sales organisation servicing thousands of businesses each month across every continent. The B2Bfocused franchisees seek out business customers who choose to save money by buying environmentally friendly recycled printer cartridges under the Cartridge World brand.

These B2B customers can choose to visit the retail location, order online from the eCommerce site and have the order fulfilled by the store or have the franchisee deliver to the business in branded Cartridge World vans.

While new franchise owners still enjoy the retail B2C walk-in business, they are trained in B2B sales and service techniques. Rather than spend their time in the back of the store in low value refilling activities, the group now offers its franchisees access to a growing global procurement program that allows them to access not only original cartridges but a wide range of compatible or factory refilled and remanufactured cartridges as finished goods to suit the printers of their business customers.

With the advent of new technology, the increase in buying power of the group and the growth in the SME market, the most successful franchisees now have hundreds of B2B customers who buy quality recycled and remanufactured printer cartridges month after month ensuring not only a predictable cash flow but a customer base that makes the franchise more saleable when a franchisee decides to transfer the franchise.

The very best of these franchise owners are now offering to manage the printing needs of their customers and have extended their offer to office printer maintenance and advice.

Retail B2B

Not all B2B franchises are low cost service businesses.

An excellent example of a business that is focused on B2B customers is the trade tool retailer Total Tools, whose clients are tradesmen (and women) who make their living using tools.

While Total Tools operate over 50 retail stores and have some DIY domestic consumers and owner-builders, the vast majority of their customers are independent businesses run by tradesmen. These customers need and want quality, robust, long lasting tools to help them earn their living delivering trade services to their clients.

This is a substantial market but requires big, high exposure, 1500 square metre locations, a large stock range and sales oriented product knowledge. A capital investment in excess of $1 million is needed to establish each location. However the  rewards can be substantial. Trading only a six day week, many stores have gross sales of over $5 million in turnover and profits exceeding $500,000 after an establishment period.

B2B franchises need a sales commitment

Prospective franchisees should not be misled by B2B franchise opportunities which promote lifestyle first. They seldom, if ever, prove to be profitable ventures and can turn a dream of independence into a self-employed nightmare.

Unless the franchisor is providing all the new clients, B2B franchisees need to be self-motivated, sales-oriented and prepared to go out into the business world and promote their goods or services. In some B2B franchises this may mean canvassing and cold-calling for new clients. Many B2B businesses are not fast start businesses but need to build their client numbers over time.

If franchisees and their families are not prepared to make sacrifices during this establishment period then perhaps a B2B franchise is not a good choice. Many good B2B franchises are labour intensive and franchisees and their families need to understand that only a total commitment to the business and its customers will ensure success.

Going into business as a B2B franchisee is a serious undertaking and requires selfdiscipline, hard work and long hours to ensure the opportunity is fully maximised. But for many, the financial rewards and satisfaction of winning and serving regular B2B customers can be rewarding.

Rod Young, founder and Chairman of DC Strategy, is considered one of the world’s leading franchise consultants with over 30 years’ at the forefront of franchising, licensing, business development and franchise education in Australia, Europe, China, South East Asia, India and the United States.

Director or Chairman on the Boards of many national and international franchise networks, Rod has developed the Franchise Knowledge Series and is a Program Director and keynote speaker at Franchise India and is on the Board of Governors of the ASEAN Franchise Association.

DC Strategy is the region’s leading end-to-end franchise consulting, legal, recruitment and branding firm. Franchise programs developed by their highly experienced specialist teams have built over $1.7 billion in enterprise value for their clients in the last decade alone growing the networks and brands of many successful national franchises.

P: 02 8220 8700
E: growth@dcstrategy.com
W: www.dcstrategy.com