We’ve seen numerous articles through the years about what it costs to franchise your business, but I suggest you think about it another way:
What’s it cost you not to franchise your business?
Loss is greater than the cost
The cost to franchise a business varies greatly, from less than $40,000 to more than $150,000, and whether you spend a little or a lot, that amount pales in comparison to what you may lose by not franchising your business.
Before I get ahead of myself, however, and lest you believe that my only purpose in writing this article is to convince you to franchise your business, let me add these caveats:
- Franchising is not for every business, and that’s okay. Some businesses cannot be franchised. Other businesses should not be franchised. The business that loses is the one that should franchise and doesn’t.
- The initial fee to franchise a business is only the beginning of your investment. Don’t be misled. The initial fee usually covers the following: franchise documents, marketing plan, operations manual, sales materials … but it doesn’t come with a network of fee-paying franchisees! You will continue to invest in your business to cultivate a profitable network of franchisees. (By the way, I think your initial cost should be in the range of $100,000. Anything less and I’d question the quality of the product. Anything more and you’re probably paying too much).
- Franchising is probably not what you do now. It’s a business discipline of its own. You may be the world’s greatest manufacturer or representative of your product or service, but that’s not franchising. You’ll have to learn how to be a franchisor, and that’s not included in your initial development fee. Are you ready to quit what you’re doing (or do less of it) to learn how to be a franchiser?
The cost not to franchise
Those points out of the way, and assuming you’re still with me, here’s what it costs you not to franchise your business:
- Systemization. Profitable businesses revolve around systems. Marketing, sales, operations–these functions must be systematized to succeed in business. However, most businesses aren’t systematized, which is a primary reason for business failure. Michael Gerber’s best-selling book, The E-Myth, explains why. Franchising a business forces you to systematize–to create a series of systems that operate the business. A franchiser needs systems for finding, training, and supporting franchisees; for showing franchisees how to market and sell; and to teach franchisees how to operate the business in all kinds of situations. In franchising, everything revolves around systems! Along with brand identity, that’s mostly what the franchisee buys–the systems. No systems equals no franchise. No systems equals under-performing business. By systematizing you can maximize the profit-potential of your business. How much are you losing by not having systems?
- Market Penetration. Unless you’re in a small town, it’s difficult to penetrate a market when you own and operate the only unit of its kind. Imagine owning one of anything in Boston, Chicago, Los Angeles, Dallas. Even if you’re “the best,” you won’t penetrate the market. Your business may prosper, you may even generate plenty of money, but you’ll also create a market for competition. And what if the competition franchises? You may recall that “the best” businesses of their kind years ago were mom-and-pop operations. Pizza. Burgers. The butcher. The auto mechanic. And what happened to them when the franchises moved into town? They were replaced and the market now belongs to the franchises. Even among franchises there’s a constant battle for market penetration. If your business doesn’t grab a chunk of it, how much are you losing?
- Brand Awareness. Customers everywhere love familiarity. So much so, in fact, that when foreigners come to the USA to study or vacation, they sometimes take home a franchise concept! They become the master licensee for that concept in their country. Consumers move geographically, but they remain faithful to brands! If your brand is a single unit on the east side of town, how much awareness are you capturing? Low brand awareness equals lower business value. So when you eventually sell your business, what will you have lost if you haven’t scored brand awareness? Because of their advertising campaigns, franchises have a way of making consumers believe they are “everywhere.” And even if they’re not, it’s the brand awareness that counts. How much are you losing to brand awareness?
- Revenue Generation. Systems, market penetration and branding all result in greater revenues for a business. And while greater revenues don’t always result in greater profits, they do if the business is operated smartly. The cumulative sales of a franchise network will almost always out-perform even the best-operated solo unit. This is a case where more usually is better! Imagine how much revenue you could generate if you received a few percentage points (i.e. a 5% royalty) on every sale made by a member of your network–any where in the world! How much are you losing by limiting your revenue generation to one–or even several–units of your business?
- Internationalization. As a solo operator, or even the operator of a several units, your concern is what’s happening in your town or city–maybe even just your neighborhood. You don’t care about what’s happening in the next state, and certainly not another country. Your brand awareness, market penetration and revenues–all your efforts–are focused on your narrow interests. Assuming that people in Germany and Australia and China will buy your products and services, you’re obviously missing those opportunities because you’re confined to one small part of the world. How much more value would an international network add to your business?
- Peopleization. I know it’s not a word, but it should be! You may have thought, “I’m only one person. Even if I recruit my family and friends, I won’t have enough people to open units around the world. And besides that, I don’t have the money!” That’s why companies choose franchising as their method of distribution. If the company can’t open and operate all the units–and most can’t, or don’t want to–“peopleization” is the answer. Use other peoples’ money and talents to expand your business. That’s franchising! How much are you losing by not bringing more people into your business?
Add up your losses
So while most people are concerned about the cost of franchising a business, so what if it costs you $150,000–even $250,000–to franchise your business? What’s it worth to you to multiply one unit into 20, 200, 2,000, maybe 20,000 or more units? And sell your products and services to the world’s marketplace, while using other peoples money and talents?
Add it up, and that’s what you’re losing by not franchising your business.