Wollermann Franchise Developments - 7 Reasons To Make Franchising Your Business Expansion Strategy

As a business expansion strategy, franchising provides many benefits to both the franchising company and the individual franchisees. The benefits to the franchisees are well documented in nearly all franchise marketing including franchisor websites, franchise recruitment advertising and editorial discussion in the various media.

Less well understood are benefits to the franchisor. As the decision to embark on franchised expansion takes some time to formulate, it is worth revisiting these benefits. A strategy of franchised expansion is always a major commitment for any company and franchising is not something you can half-do or adopt a “try it and see” approach.

So, let’s elaborate the most common reasons why franchising can be such a powerful strategy for reaching a long-term expansion objective for a franchisor.

1. Investment by franchisees

  • The Franchisee puts up the money to set-up and operate their franchised outlet or territory.
  • Typically, this includes plant & equipment, stock, premises, working capital; plus:
  • An initial Franchise Fee which covers the cost of recruitment and provides some initial profit to the franchisor.
  • Therefore, expansion for the Franchisor does not require a huge capital outlay.

2.  Rapid expansion

  • The franchisor can open up new outlets and territories very quickly by using the franchisee’s money.
  • It is best to expand in multiples to maximise efficiencies and to reach a critical mass as early as possible.
  • In many cases, it costs no more to set up 5 or 10 franchises than it does for just 1 or 2.

3.  Reach

  • By franchising, a franchisor can easily access markets a long way from home base or home city.
  • This makes franchising ideal for interstate and international expansion.

4.  Motivation

  • A franchisee has his or her own money invested in their franchise, therefore they are highly motivated to make it work.
  • Ownership always achieves a better result than having a manager and staff operate each outlet or territory.

5.  Local knowledge

  • A franchisee is a local in their local market. As such, they can build a client base far better than a company operating a remote branch outlet.
  • A franchisee’s local knowledge includes being part of their local community.
  • Local knowledge become critically important for international expansion where customs, culture and language are often very different from the franchisor’s home country or city.

6.  Complementary roles

  • Each party does what they are best suited to.
  • The franchisor takes a global or macro view and builds the brand profile, while providing support to the franchisee network.
  • The franchisee has a local perspective, runs the day-to-day operations and is responsible for performance of one business unit.

 

7.  Profitability

 

  • Franchising is a different business model to full company ownership of distribution channels and requires a different mind set by a franchisor.
  • Royalties and Franchise Fees replace outlet bottom-line (which is franchisee’s profit).
  • Product sales are at wholesale to the franchisee therefore the franchisor needs to build a network of multiple outlets/operators ideally all buying from the franchisor.
  • Franchisor’s profits come from expansion of the network, not selling directly to the end customer.

 

It is this duality of roles that makes franchising so effective. It’s a business relationship in which each party does what they do best. For a franchisor, it is about building a network, and with this focus and commitment, franchising can deliver significant benefits to a company that are simply not available by alternate, or traditional, means.

 

 

Roger Dickeson

Senior Franchise Consultant

Wollermann Franchise Developments