Advantages of Franchising: Unveiling the Data-Backed Benefits
Are you an aspiring entrepreneur with dreams of starting your own business?
Before you dive headfirst into the risky and competitive world of startups, there’s a secret weapon that can significantly boost your chances of success: franchising.
This isn’t just your run-of-the-mill business strategy—franchise opportunities bring with them advantages for prospective and seasoned entrepreneurs alike—and the statistics overwhelmingly support that. In this article, we’ll be weighing those advantages against some disadvantages of franchising, as well. Let’s rock ‘n’ roll.
What is franchising? A quick summary for the uninitiated
Franchising is a business model and strategy that involves the licensing of a company’s established brand, business processes, and operational systems to individuals or groups (franchisees) who wish to replicate the successful business concept.
Under a franchise agreement, the franchisor,—which is the parent company or brand owner—grants the franchisee the right to operate a business using its established brand identity, products or services, and operational methodologies.
In return, the franchisee typically pays fees and royalties to the franchisor for ongoing support, training, and the use of the brand.
Now that the boring definition is out of the way, let’s check out what benefits you would enjoy by becoming a franchisee!
Advantages of franchising
There are a ton of benefits of franchising. As long as you’re driven, creative, and passionate about what you’re doing, these benefits will supplement everything you do as a franchise owner.
A built-in recipe for success
Imagine having a playbook for business success right from the get-go. A proven track to growth that lets you hit the ground running. That’s what franchising offers you—a tried-and-true business model that’s already been put to the test.
According to the International Franchise Association (IFA), the success rate of franchise businesses is significantly higher than that of independent startups. The IFA reports that while the overall startup failure rate is around 20%, the failure rate for franchises hovers around 5%.
But those figures are extremely dated. In fact, a much more recent study by Vetted Biz discovered that, among the top 100 new franchises, an average failure rate of less than 2% was the reality.
That’s an astounding difference that speaks volumes about the power of taking the reigns on a brand with existing momentum.
Riding the brand recognition wave
Think about it: opening a brand new business and struggling to make a name for yourself versus stepping into a recognized brand that customers already trust.
The choice is clear.
Franchising provides you with a shortcut to brand awareness that can take years to establish with an independent business. Forbes notes that leveraging an established brand name can significantly reduce the time and effort required to build a customer base. This means faster growth, greater loyalty, more trust, and ultimately, higher revenues.
Consistent expert guidance and support
Starting a business from scratch is like navigating a maze blindfolded. But with franchising, you’re not alone.
Franchisors come with a built-in support system that’s designed to help you thrive. According to a survey conducted by Franchise Business Review, a whopping 87% of franchisees agree that they receive ongoing support from their franchisors.
From initial training to continuous guidance, you’re not just getting a business opportunity, you’re getting a mentorship that significantly increases your chances of success.
Tapping into an existing customer base
One of the most daunting tasks for any new business is building a customer base from scratch. But when you’re a franchisee, you’re stepping into a business that already has a loyal following.
According to a study by the Franchise Research Institute, the majority of franchisees reported that their franchisors provide effective marketing and advertising support.
This means you can hit the ground running with an existing customer base, leading to faster growth and higher profitability.
Navigating the financial landscape
Let’s talk money.
Starting a business requires a significant investment of capital, and securing funding can be a major hurdle. However, Loans Canada reports that lenders are often more inclined to finance franchise businesses due to their proven track record.
In fact, around 60% of prospective franchisees secure funding from traditional lenders (conditions apply, but don’t they always with lending) versus a much lower success rate for startup small businesses. This means you’re more likely to get the financial support you need to turn your entrepreneurial vision into reality.
Stepping into global markets
Have dreams of taking your business to the international stage? Franchising might just be your ticket.
According to a report by the United States Department of Commerce, franchise businesses have a higher success rate when expanding internationally compared to independent businesses. The established brand, operational systems, and support from the franchisor make international expansion a more achievable goal, allowing you to tap into global markets with confidence.
Protecting the environment
A ton of franchises nowadays are mobile operations that serve customers wherever they are. This typically only requires a vehicle, cutting down on the need for extensive construction, equipment, or waste that might be associated with, say, a new restaurant.
This type of business model means you can earn well while still injecting your values into what you do. It’s hugely motivating to contribute to sustainability while earning a living.
Potential Disadvantages of Franchising
In the spirit of transparency, it’s important that we also identify some potential drawbacks to the franchise system. These are highly subjective, but it’s always important to weigh out every fact before jumping into such a life-changing decision.
Lack of autonomy
Franchisees must adhere to the established business model, operating procedures, and all aspects of the business set by the franchisor. This can limit their ability to make business decisions about aspects such as pricing, menu offerings, marketing strategies, and day-to-day operations in general.
The need to follow strict guidelines can sometimes hinder a franchisee’s creativity and entrepreneurial spirit, and even though a franchisee does own the business, they might not fully feel like their “own boss.”
While franchises provide a proven business model, they often come with substantial initial costs/initial investment and ongoing fees. These expenses might include franchise fees, royalties, advertising contributions, and other charges.
Additionally, franchisees might be required to purchase products or services exclusively from the franchisor or approved suppliers, which can limit their ability to negotiate better deals with other vendors.
That being said, startups often face more significant start-up costs without the added security and support of a franchising arrangement.
Fair, flexible, family. Fibrenew.
Franchising isn’t just a business strategy; it’s a proven path to success that’s supported by a wealth of data and statistics. From a higher success rate to brand recognition, ongoing support, and access to a ready-made customer base, the advantages of franchising are undeniable.
At Fibrenew, we strive to make every franchisee who joins the crew a new member of the family. We don’t treat anyone as a number—that’s why we have such a stringent onboarding process to maximize the success of everyone involved.
To add to that, we offer a low-cost, low-overhead, in-home service with your own dedicated territory so you can really get up and running (and earning) fast.
Don’t take our word for it—check out some stories of success straight from some of our most successful and passionate franchisees.
Get in touch today, we look forward to meeting you!
First-time franchising FAQ
What is a franchise?
A franchise is a business model where an individual (franchisee) purchases the rights to operate a business using the branding, products, and services of an established company (franchisor). The franchisee follows a proven business model and receives support from the franchisor.
Why should I consider buying a franchise instead of starting my own business?
Franchises offer a higher likelihood of success compared to starting a business from scratch because you’re leveraging an established brand, proven processes, and ongoing support. Franchises also often come with training, marketing assistance, and a built-in customer base.
What are the advantages of owning a franchise?
Advantages include brand recognition, a proven business model, access to training and support, bulk purchasing power, established supplier relationships, and the potential for faster ROI compared to starting an independent business.
What are the potential drawbacks of owning a franchise?
Drawbacks can include high initial investment costs, ongoing royalty fees, limited autonomy in business decisions, contractual obligations to the franchisor, and the risk of negative impacts if the franchisor faces legal or reputational issues.
How much does it cost to buy a franchise?
Franchise costs vary widely depending on the industry, brand, and location. Initial investment can range from thousands to millions of dollars. Costs may include franchise fees, real estate, equipment, inventory, and working capital.
What is a franchise fee?
A franchise fee is the upfront payment you make to the franchisor for the right to use their brand and business model. It’s a one-time cost and is usually paid before you open your franchise.
What ongoing fees can I expect to pay?
Ongoing fees often include royalty fees (a percentage of your revenue) and advertising or marketing fees. These fees support the franchisor’s ongoing support, marketing efforts, and brand development.
How do I choose the right franchise for me?
Consider your interests, skills, budget, and market trends. Research various franchises, speak to current franchisees, review the Franchise Disclosure Document (FDD) provided by the franchisor, and seek professional advice from legal and financial experts.
What is the Franchise Disclosure Document (FDD)?
The FDD is a legal document provided by the franchisor to the potential franchisee. It contains essential information about the franchise, including the business model, costs, obligations, and details about the franchisor-franchisee relationship.
What kind of support can I expect from the franchisor?
Franchisors typically provide training, marketing support, operational guidance, and ongoing assistance. The level of support can vary, so it’s crucial to discuss this with the franchisor before making a decision.
Can I sell my franchise if I no longer want to operate it?
Most franchise agreements allow franchisees to sell their franchises, but the process and restrictions can vary. Some franchisors might have the right of first refusal or require approval of the new buyer.
What’s the typical timeline for opening a franchise?
The timeline varies depending on factors such as location, business type, and the franchisor’s processes. It can take several months from the initial application to opening day.
How much say do I have in business decisions as a franchisee?
Franchisees typically follow the franchisor’s established processes and guidelines. While there may be some room for local decision-making, major business decisions often require franchisor approval.
What happens if the franchisor faces financial or legal troubles?
It’s important to address this scenario in the FDD and during discussions with the franchisor. Some franchise agreements have provisions for such situations, but there can be risks involved.