Business Models

THE FRANCHISING MODEL

* The business model of franchising has been called one of the greatest ever developed. Its popularity has to do with its proven track record of success, and the relative ease in which people can become franchise business owners.  Franchising contributes a sizeable amount of dollars to the U.S. economy, and some of the data that I’ll be sharing with you here will bear that out.

The Benefits of the Franchise Model

Franchising provides benefits for both seller and buyer. For franchisors, the primary benefit is the ability to use other people's money to expand the brand more rapidly than they could either on their own or through investors or lenders. The initial franchise fee and ongoing royalties they collect allow franchisors to build their brand without sacrificing control to outsiders or the pressure of repaying lenders. The fees and royalties are used to fund operations at corporate headquarters, train and support franchisees, market and advertise the brand, improve the quality of goods or services, and build the brand in the marketplace.

For franchisees, benefits include: a higher chance of success than in a sole proprietorship; shorter time to opening; initial training and ongoing support; assistance in finding an optimal site; the selling power of a known brand; lower costs through group purchasing; use of an established business model; national and regional advertising campaigns; customer lead generation through websites and centralized call centers; and a network of peers (fellow franchisees) to provide advice and moral support through a company intranet, annual conferences, and franchisee associations; and, increasingly, assistance with securing funding.

Potential downsides for franchisees include: lack of independence, from the goods and services they sell to the color of the paint on their walls; mandatory company-wide promotions that may not work in their market (price cuts, new products or services), yet cost money to...