Why should you become a franchisor?
What advantages do franchisors have from franchising?
By choosing franchising, franchisors can expand more quickly as the new business locations are financed by the franchisees. Thanks to the motivation of independent entrepreneurs, franchisee-run businesses are generally more profitable than company-run branches. There are also no liability risks for the franchisors as each franchisee-run business is a legally independent unit. Last but not least, franchisors profit from the fees paid by the franchisees.
The decisive advantages of a franchise system for the franchisors are in the areas of:
- Personnel Costs
Generally franchisees are highly motivated and committed partners as they are independent business people, who have invested their own money into the business. As a result there are leaner structures and lower personnel costs at the head office. The specialists at the head office are, for the most part, spared the routine of the everyday business and can concentrate on strategical questions, the development of the system as well as the training and advising of the partners in their areas. In principle the systems head office merely offers advice when franchisees have problems with their personnel as it is more sensible within the framework of the division of tasks that the partners themselves tackle these problems. Consequently franchisors are not burdened with the costs and risks of personnel management.
- Expansion Risks
There are considerable financial risks involved in the economic expansion of a business. In comparison to founding their own branches the business risks are small for franchisors when building up franchise businesses, as the legally independent partners must bear the investments and everyday costs themselves. Each successful franchise business strengthens the financial situation and image of the whole system and contributes to a more rapid expansion.
- Capital Requirements
By duplicating a successful pilot project it is possible to achieve a rapid increase in turnover. As franchisees participate in the expansion costs through fees and investments the capital requirements of the franchisors are considerably reduced. By using this method the systems head office needs less personal capital and has lower interest charges on borrowed capital. As a result the expansion of a business can take place much more quickly.
- Closeness to Customers
Franchisees put their abilities, experience and contacts into the partnership and are present in their areas. Experience shows that independent franchisees look after their customers more intensively than employed managers. The orientation of franchise systems towards partnerships, therefore, also includes customer relationships. As franchise systems only mark out the framework of the franchisees’ work, each partner can react quickly and flexibly in their areas to the wishes of the customers and the activities of their competitors. In the face of ever-growing competition, it is of paramount importance that customer satisfaction is maximised whilst maintaining an appropriate profit as this is the key to economic success.
- Market Observation
When planning marketing mixes and the development of their systems, franchisors rely on information from their partners, who are constantly interchanging their knowledge and experiences with one another and passing these on to the head offices. Franchise businesses have an excellent market research instrument with this continuous channelling of information. The significance of a central customer database to draw up detailed customer profiles must not be underestimated in view of the increasing competition on the markets.
- Early Warning System
Businesses must be extremely sensitive to market changes if they are to recognise and react to the diverse, rapidly changing and interconnected market trends. As franchisees have a very close contact to their customers they are able to recognise new trends more quickly than the experts at the head offices. Successful franchisors ensure that observations are passed on to them where they are evaluated quickly so that with their help they are able to react quickly, flexibly and in a suitable manner to changing market conditions and consumer trends.