By Eric Parker
We are often asked by Business Owners “why should I franchise my business”?
Our first response is that not all businesses are franchisable and/or suitable for franchising.
We start with a preliminary investigation to determine the franchisability of the business and the R.O.I. the owner can expect.
Assuming the business is franchisable there are 12 really good reasons to support the franchising of your business.
1. The Power of an Owner Operator
An owner operator who is at risk will always outperform an employee. Very often the franchisee has invested his life savings in the business and must make it work!
2. Very High Return on Investment (R.O.I.)
The Franchisor needs to invest no capital in a new outlet but instead receives a capital injection in the form of an upfront fee, usually around R150 000-00.
The Franchisor then receives a royalty ± 5% of turnover (depending on the industry) as well as a marketing contribution. This capital inflow is created without risk! However, the franchisor must provide ongoing advice and assistance to franchisees and spend the marketing contribution on campaigns that benefit the whole group.
3. Don’t need to Sweat the Small Stuff
The franchisor does not need to worry about the telephone account, petty cash or the abuse of the company bakkie – the franchisee will take care of that – The Franchisor needs to give strategic direction and mentoring.
4. Reduced Risk
You will not end up with branches running at a loss. We often get companies wanting to franchise their loss making branches – this is not possible – however the chances are these branches would have been profitable had they been franchised.
5. Superior Customer Care
A franchisee really cares about his customers and will go out of his way to please them. The franchisee also has the authority to refund the customer in full or send them flowers etc.
6. Reduced, High Quality Support Structure
To support franchisees you need a small flat, high quality staff structure. A Field service Consultant is the link between the franchisee and the franchisor. The Field service Consultant plays the role of a communicator and mentor and can be responsible for 12 to 15 franchisees.
The latest trend is towards multiple unit franchisees and this makes management even easier because you are dealing with less, more experienced franchisees.
7. Reduced Staff Turnover
The franchisees are committed and permanent. You don’t have to worry about managing store management and staff and all the problems that go with it e.g. CCMA cases etc. – The franchisees will also utilise family and in so doing reduce staff costs and increase efficiency.
8. Increased Marketing Expenditure
Each outlet will contribute a fixed percentage to the marketing fund. This money must be spent on marketing and therefore you will be able to develop a very strong brand. Remember the brand belongs to you and you are developing a very strong asset in your balance sheet.
9. Offers you an impressive R.O.I.
Franchising offers you a unique profit opportunity consisting of very limited capital outlay, low risk, guaranteed monthly returns with high growth rates. The high growth rates and increased marketing helps you develop a brand which is a saleable asset.
10. Improved Procurement
Faster growth will increase sales giving you the leverage with suppliers to negotiate better prices and terms. These improved prices will benefit the company owned outlets.
As a bigger group suppliers will also contribute more to joint promotions and advertising. You will also be in a position to create and promote house brands if in the retail sector.
11. Better Utilisation of Training
Franchisees are permanent and will benefit from initial and ongoing training. They will initiate training for their staff, as opposed to high staff turnover in company outlets. You will continually be trying to play catch up with training if you own all your outlets.
Generation Y are not loyal and will move across the street for an extra R50 per month. This implies high staff turnover and under-utilisation of training.
12. Brand Ambassadors
Good franchisees are normally well established in their local areas and they become brand ambassadors. Initially customers will patronise the outlet because of the franchisee rather than the brand. This local brand ambassador is advantageous over a company owned outlet.
So we think it is clear that owner operators have a place in your expansion plans. If you are still worried about lack of control we can help you develop joint ventures where you have the advantage of the owner operation while maintaining the majority shares and control.