Buying a Franchise
Chapter 8: Buying a Franchise
Franchising is about cutting YOUR risks when deciding to run your own business, by jumping on the band-wagon of a proven business enterprise and name: in effect, you are COPYING a proven product AND marketing system. What franchising is not about is being ask to pay a fee to a franchise company to become a regional representative for a new and unproven product or service: that is called ‘easy pickings’ and ‘profiteering’.
When you buy a franchise, you will be given everything that is needed to keep the business running successfully.
This will include training, customer leads, research information, equipment, suppliers and marketing tools. In addition, you will have the license to use the business name and any other patents, brandings and trademarks that the business has used. Franchising gives you a brand that will be chosen over products that have the same function and possibly the same quality. Behind the consumer psychology of it all, people will go for a brand that they know and trust when in doubt over choosing between a range of similar products.
8a) How Does it Work?
A successful business decides that they have the type of product and/or service that is in a fairly niche market and would be of interest to individuals who want to run their own business but do not have the ideas, desire or capabilities to set up their own business, or those who simply believe that a business selling a proven product is a sensible option for their circumstances and/or character. The benefit to the franchisor is also capital: not having to obtain finance and then use it to fund the growth of your business is a major benefit, alongside gaining quality entrepreneurs to join in the brand building and market share grab.
| 1 | A franchisor advertises the service or product |
| 2 | You (the franchisee) request a franchise information pack |
| 3 | You complete an application |
| 4 | The franchisor accepts your application, or with major franchises, you have a meeting |
| 5 | You sign an Agreement for, say, 5 years |
| 6 | You pay the initial fee |
| 7 | You receive training, resources (supplies, starter pack) and marketing help and/or advice |
| 8 | You start to trade |
| 9 | You continue to buy supplies from the franchisor (possibly at a minimum figure each week/month) |
| 10 | You pay a weekly/monthly/yearly service fee (or maybe not) |
8b) Will Any Product Work ?
A proven product should be shown to have succeeded in more than one location, and also to have been shown to be capable of success in a fairly short time (the franchise product should not rely on being a family run business for, say, the last 10 years). A well-known brand name is not essential as long as the business is known to be in demand: the franchisor should have market research that shows little risk in the venture given an average area.
What About Marketing?
To understand the importance of marketing look at names such as McDonalds and Kodak: they constantly promote the product and fight off any attempt by competitors to attempt to take on the market. To maintain a product as a market leader the franchisor may charge an additional levy for marketing purposes: although this charge could well be included in the original and/ or service fee. A realistic expectation for the average franchise is to see your product in the relevant marketing arena: TV, monthly glossy, national and/ or local press, radio etc. Of course, local marketing is usually at the expense of you. An interesting note: you will see the large burger bars marketing “at participating stores only”!
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