Retail or Service franchise: Which is a better fit?
There are as many types of franchises as there are businesses. The franchise model is usually a safer way of starting a business for the first time. Many would-be entrepreneurs fail at their first attempt in business when they start on their own. A franchise business can give people the knowledge that is required to run a business and this knowledge can be used successfully in any future business.
Anyone seriously considering the purchase of a franchise will ultimately have to decide if a ‘service’ franchise or ‘retail’ franchise is a better fit. It’s an important distinction in terms of both entry requirements and operational realities, and it’s a decision that can determine your ultimate effectiveness as a franchise operator.
First, a basic summary of some typical service franchise opportunities available today, here are just a few: trade and handyman (electricians, plumbers), lawn maintenance, landscape services, childcare, tutoring, education, business coaches, accounting, bookkeeping, real estate agents, travel agents, commercial and domestic cleaning, automotive-related services, computer-related services, and interior design/decorating.
With this is mind, consider that service franchises generally can offer more economical start up and operating costs and often require much less personnel for daily operation. A service franchise is frequently home-based and allows for - and often requires - a lot of mobility. Of course, there are pros and cons to this business model.
Service franchise advantages
Service franchises typically allow you entry at a fraction of the cost of a retail franchise - often just a few thousand dollars of investment compared to six figures for many retail opportunities. Yet, the income potential is still attractive and can be considerable. So there’s the affordability factor and a lower upfront risk from day one.
There’s also a wide selection of opportunities and niches in the service franchise sector. And many of these businesses have a healthy and constant demand (plumbing will always need to be repaired, for example).
Service franchises are typically ‘skills based’ and offer those with the ability, interest, and dedication to be active and ‘work with their hands’ as they build their business. Because many service franchises do not require a bricks and mortar location for franchisee operations, overheads are typically much lower. It’s very easy to turn a quick and healthy cash flow when you work from a home-based office. And with very few employees, your staffing headaches can be minimal. And later on, the lack of a physical location makes it easier to take on
additional territories at a minimal cost.
Additionally, working hours can be flexible - often by appointment only - so you’re not restricted by long retail hours. This can be a big plus for some lifestyles. But keep in mind, like most businesses, the more you work the more you earn.
Service franchise disadvantages
Because of the nature of the beast, service oriented franchises may not offer the kind of customer and transaction volume you’d find at a retail franchise. That fact alone can limit your degree of profitability. Especially, if you are a one person operation, there are only so many appointments you can make in a day. And small operations can become seriously derailed in the case of personal illness or any major sickness.
Also, some service franchisees can limit the number of employees you have and can also restrict your territory. You’ll want to ask about this right off the bat. And, it’s not uncommon to have to function as the owner/operator as well as the employee (you wear all the hats). You may be providing electrical repairs for your customer by day while marketing your business and handling paperwork by night.
And some trades, such as plumbers and electricians, require technical knowledge, certification, and continuing education. That could occupy time that would otherwise be spent making customer calls.
Retail franchising is the kind of business operation that most people are familiar with today. After all, everybody knows McDonald’s and KFC, but there’s much more to know about retail franchising. Like its counterpart, service franchising, retail franchising offers its own set of
pros and cons. There are advantages and disadvantages that make it unique. In the right circumstances, retail franchising can make a very good career choice and provide a healthy income for many people. But you’ll want to do your homework and make careful considerations.
First, take a look at the crowded playing field. Retail franchises are available in everything from QSR (quick serve restaurants), to dry cleaning stores, to appliance and furniture rental stores. There are literally thousands of opportunities. Often, brand recognition makes this kind of franchising very popular, but that big brand name can come with a price. Capital investment and start-up costs for some retail franchise brands can easily top $500,000, and up. But properly executed, the potential payoff can be significant.
Retail Franchising 101
If retail franchising sounds attractive to you, begin by taking a personal inventory. Examine your skills, interests, and financial situation. Do you like to engage with people (both customers and employees) regularly? Are you averse to retail hours (night and weekends)? Be honest with yourself. Also, do you have access to the significant amount of capital that may be required to get started? Can you afford to take on this kind of debt and risk fiscally and emotionally? These are all important questions you’ll want to consider. If retail franchising still looks good to you, then proceed to examine and define the brands and concepts that you could see yourself being a part of.
Keys to success
If you are going to choose a retail franchise concept, one of the keys to a successful retail operation is, as they say in the real estate industry, location, location, location. A retail franchise is driven by solid, consistent traffic. Look for locations or territories near you that
could support a retail franchise. You’ll want some competition, but not too much. You’ll also want to choose a retail franchise concept that would fit your market. For example, if you live in a colder-climate northern state, that has short summers, a frozen yogurt franchise might not be such a good choice. But, perhaps, burgers would be in high demand more consistently.
One of the biggest differences between a service franchise and a retail franchise is the employee factor. You’re going to need them - lots of them - in a retail franchise. This means you’ll need to hire, train, retain, and yes, fire employees. HR is a big part of operating a retail franchise concept - and becomes even more so if you expand to operate multiple locations. Finding and keeping quality employees can be a challenge, but when you do find them, they can make your operation really shine. Of course, bricks and mortar retail locations
require building, remodelling, maintenance, and updating from time to time. There are also permits, insurance, and all kinds of regulations to stay on top of. But if you like to manage actively, work with a variety of people, and can delegate responsibilities, then retail franchising may be perfect for you. And, when you build a great location with high traffic and satisfied customers, you’ve built a successful business. You’ll certainly want to evaluate how these pros and cons measure up for you. For many who are active and like to be right in the middle of the action, a service franchise may be just right choice.
Kevin has been involved in franchising for over 19 years. He has been a franchisee and franchisor. His exposure to franchising started with banking in NAB, then as a recruitment consultant for one of Australia’s most successful franchise development companies.
In 2006 Kevin founded Franchise Selection, a specialist recruitment firm that specialises in recruiting franchisees. Today his company now assists more than 20 small to large franchise organisations throughout Australia and overseas.