What Is Franchising?
Franchising is a way to grow a business that lets a company owner sell their knowledge, experience, and concept to dedicated individuals who put up the money to open and operate new franchise locations.
Franchising has expanded to include an ever-widening variety of businesses, products, and industries. Its application to new concepts and emerging industries will only increase in the future.
Franchises are generally known to the public under a well promoted name like McDonald’s®, not the names of the individual franchise owners. As a result, the general public may not realize that many businesses with multiple locations are in fact franchises with each individual location being managed by a franchise owner. The first box below lists 100 well-known franchise companies; the second box lists 100 relatively unknown franchise companies that each have more than 200 franchises !
You’ve Probably Heard Of These Franchises
|A&W Rootbeer||Coor’s||Jaguar||Planet Fitness|
|Ace Hardware||Dairy Queen||Jeep||Popeyes|
|Allstate||Days Inns||Jiffy Lube||Porsche|
|Arthur Murray||Dunkin’||Little Caesar’s||Ramada|
|Best Western Hotels||Ford||Marriott||Roto-Rooter|
|Better Homes||General Motors||Maytag||7-Eleven|
|Buick||Haagen-Dazs||Miller Brewing||Snap On Tools|
|Burger King||Hallmark||Miracle Ear||Stride Rite|
|Century 21||Harley-Davidson||National Car Rental||Taco Bell|
|Circle K||Holiday Inn||Pearle Vision||Volkswagen|
|Comfort Inn||Jack In The Box||Pizza Hut||Westin|
You’ve Probably Heard Of These Franchises
Best Western Hotels
Jack In The Box
National Car Rental
Snap On Tools
But You May Not Have Heard Of These — Each Of Which Has More Than 200 Franchises!
|Aaron’s Rents||Culver’s||Marble Slab Creamery||Proforma|
|ACFN Network||Del Taco||Matco Tools||Pronto Insurance|
|AlphaGraphics||800 Water Damage||Microtel||Pure Barre|
|AmericInn||El Pollo Loco||Minuteman Press||Qdoba Grill|
|Any Lab Test||Express Personnel||Moe’s Southwest Grill||Rainbow Intl|
|ASP Pool||Fast Frame||Money Mailer||Red Robin|
|Batteries Plus||Fastsigns||Monster Tree||Rita’s Water Ice|
|Big O Tires||Firehouse Subs||Mr. Appliance||Round Table Pizza|
|Board And Brush||First Choice Haircuts||Mr. Rooter||Signs Now|
|Boston Pizza||Five Star Painting||Office Pride||Sir Speedy|
|Bruegger’s Bagels||Fox’s Pizza Den||Once Upon A Child||Stanley Steemer|
|Buffalo Wild Wings||Goddard School||One Hour Heating||Steamatic|
|Carstar||Golden Corral||101 Mobility||Swensons|
|Cartridge World||Home Instead||Pak Mail||Sylvan Learning|
|Certa Pro Painters||Huddle House||Papa Murphy’s||Taco John’s|
|Chester’s||Hungry Howie’s||Paul Davis Systems||Taco Time|
|CiCi’s Pizza||Interim Health Care||Perkins Restaurants||Team Logic|
|Cinnabon||Jamba Juice||Pet Supplies Plus||The Little Gym|
|CleanNet||Jani-King||Phenix Salon||Tropical Smoothie|
|CMIT||Kitchen Tune-Up||Pizza Inn||Two Men & A Truck|
|Comfort Keepers||Labor Finders||Planet Beach||Unishippers|
|Cost Cutters||Lady Of America||Plato’s Closet||Wild Birds Unltd|
|Country Inn||Lawn Doctor||Play It Again Sports||Wing Stop|
|Coverall||Maid Bridgade||Post Net||Wing Zone|
|Cruise Planners||Maid To Perfection||Precision Tune||Zaxby’s|
But You May Not Have Heard Of These — Each Of Which Has More Than 200 Franchises!
Any Lab Test
Big O Tires
Board And Brush
Buffalo Wild Wings
Certa Pro Painters
800 Water Damage
El Pollo Loco
First Choice Haircuts
Five Star Painting
Fox’s Pizza Den
Interim Health Care
Lady Of America
Maid To Perfection
Marble Slab Creamery
Moe’s Southwest Grill
Once Upon A Child
One Hour Heating
Paul Davis Systems
Pet Supplies Plus
Play It Again Sports
Rita’s Water Ice
Round Table Pizza
The Little Gym
Two Men & A Truck
Wild Birds Unltd
A HISTORICAL DEFINITION
Historically, the word “franchising” meant the granting of a right or privilege to an individual or group. In more recent times, it broadly may include business arrangements known as franchises, dealerships, and distributorships, to name a few.
A REGULATORY DEFINITION
The Federal Trade Commission defines “franchising” as a business relationship in which an individual owner:
- Operates Under A Brand Name (such as Planet Fitness® or Century 21® or Dunkin’®);
- Receives Significant Control Or Assistance (from the parent company); and,
- Pays A Fee To The Parent Company ($500 or more within the first six months of operation).
If a business arrangement includes these 3 elements, it’s a franchise and the franchising company must comply with the rules of the Federal Trade Commission in the selling of franchises. The Federal Trade Commission requires that a franchise company must give a prospective franchise buyer a Disclosure Document which gives the prospective buyer certain background information, such as, their required investment, the support that the franchise company provides, contact information for franchise owners, and the financial statements of the franchising company.
A BUSINESS DEFINITION
Franchising has been described as:
- a method of Distribution of goods and services;
- a method of Marketing;
- a method of Growth; and,
- a method of Capital Acquisition.
Increasingly, franchising has become:
- a method of Employment.
For a company wishing to expand to other locations, franchising offers the opportunity to have branch locations operated by “dedicated” managers rather than company employees.
WHAT FRANCHISING IS NOT
- Franchising is not an industry. There’s no such thing. Over 300 different industries and types of businesses utilize franchising.
- Franchising is not a magic show. Franchising in not about selling some franchises. It’s about building a company — a serious business venture. A person who franchises their restaurant to others will still be in the restaurant business. They’ll have to develop new menu items, new promotional programs, new décor concepts, and so forth.
THE TYPES OF FRANCHISES
Historically, franchises have been generally categorized as “product and trade name” franchises or “business format” franchises. Today, the real difference is that in a “product and trade name” franchise, the franchisor is usually the manufacturer of a product, which it wholesales to the franchisee for resale. In a “business format” approach, the franchisee is usually not reselling a product manufactured by the franchisor. In both types, the franchisee is operating the business according to the franchisor’s rules, methods,
The Advantages And Disadvantages Of Franchising.
Advantages — To Consumers
- Reliability — Franchising is booming because consumers like to purchase goods and services from familiar names with reliable standards of service and quality. They like to deal with businesses where the owner is on-premise.
Disadvantages — To Consumers
- Sameness — Some may miss local mom and pop shops and raise concerns that chain stores make every city look alike.
Advantages — To Franchise Buyers
- The Benefits Of Belonging To An Established Brand — A well-run, respected brand should result in higher individual unit sales than a similar independent business.
- Help In Starting A Business — Some people buy a franchise because they’ve never started a business before and they want help in doing so.
- Lower Risk — Since a franchise is usually a “duplicate” of an already successful business, it should have a good chance of success.
- Quicker Start-Up / Higher Sales / Higher Profits / Increased Equity — When a person buys a franchise, they’re getting start-up support and they’re buying the “learning curve”. As an alternative, if they were to start a similar independent business, it would take longer to achieve the sales volume associated with buying a franchise. The trial and error stages have already been done by the franchisor and as a result, profits and business equity should be built faster.
- Be One’s Own Boss — Franchising allows an individual to feel the pride and independence of owning their own business.
- Training — The training an individual receives in a franchise should help them avoid mistakes and generate more volume and profits.
- Support / Ongoing Assistance — Ongoing support should give a franchise owner quick access to help in solving problems and a feeling of “not being alone”.
- Collective Buying Power — Collective buying power should help reduce the costs of doing business.
- Regional / National Marketing — A chain of operating units can afford to generate far more exposure and advertising than can a single unit independent, which should result in higher sales volumes.
- Systems / Policies / Procedures Already Tested and Established — Tested and proven systems should save development time and help prevent mistakes.
- Mutual Destiny — The success of the franchise owner is in the best interest of the franchisor.
- Research and Development — The research and development performed by the franchisor could save valuable time and money for the franchise owner.
Disadvantages — To Franchise Buyers
- Loss Of Independence — An independent business owner could change store layouts, equipment, services, menus, and so on rather quickly. A franchise owner has rules and regulations that govern their look and layout, services offered, who they must buy from, etc. Does this loss of control outweigh the benefits of belonging to a good franchise system? No.
- Payment Of Fees — While nobody wants to pay fees, a good portion of those fees goes to supporting the franchisees and building their sales volumes while reducing costs. A smart franchisee shouldn’t mind paying fees because the benefits that they receive in return should far outweigh the cost of the fees.
Advantages — To The Franchise Company
- Provides Expansion Capital — The franchise buyer puts up the investment money to open the branch unit.
- Fast Growth — Franchising allows companies to grow quickly because the franchise buyer not only supplies the investment capital, but also provides “dedicated” management — thus freeing up the franchisor’s time to open more units.
- Quality On-Site Management — Since the franchisee is more dedicated than a company employee, sales and profits should be higher, expenses should be lower, customer satisfaction should be greater, and quality standards should be maintained. Today, most franchisees are well-educated, experienced, former middle managers.
- Fewer Day-To-Day Operating Headaches — The franchisee handles the day-to-day operating decisions. They take care of employee problems, hiring, firing, etc.
- Less Corporate Overhead — Since the franchise owner takes care of the day-to-day operating responsibility, the parent company support structure for franchise units should be smaller compared to company-owned units.
- Faster Market Penetration — Franchising can help a company penetrate the market quickly.
- Higher System-Wide Sales — Research has shown that individual unit sales increase when converted into a franchise system. Because the owner is on site, a typical franchise unit should have higher sales than a company-owned unit. McDonald’s® says that “We’ve discovered that the franchised restaurants do better than the company owned.”
- Captive Market For The Franchise Company’s Products — Franchising can provide a dedicated captive market to manufacturers.
- Financial Leverage — Franchising provides a way to cash in on the franchise company’s experience and knowledge by selling it to others.
- Opens Up Regional / National Account Opportunities — Some businesses, if they have branch locations, can lend themselves to serving regional or national accounts, whereas a single location independent can’t provide service to a national account that has multiple locations.
- Increased Buying and Marketing Power — A company with a growing number of locations increases their buying and marketing power and lowers the costs for all individual locations.
Disadvantages — To The Franchise Company
Are Total Profits Higher With Company Owned Locations?
While a company operated store “on paper” may appear more profitable than a franchise, the profit must be offset by the additional corporate supervisory costs needed for company stores, and the possible reduced sales volume in the location due to the lack of the presence of a dedicated, invested local owner. Since, franchising allows a company to open more franchise locations (for the same dollar investment) in a fixed period of time (like 1 year) than company owned locations, the total profits generated from multiple franchise locations should more than offset the higher profitability of one individual company location.
Some may say that a company could lose some control by franchising their business. While they may lose some “instantaneous” control — like being able to walk into a store and change the layout, or paint the walls pink, or change the store hours — they maintain “delayed” control by informing the franchisee of changes they must make, backed up the contract that they’ve signed with the franchise company compelling them to conform. Since a franchise owner is dedicated and wants and needs the business to succeed, in many ways, a franchise company has better control over a branch operation with a franchise owner than if a company manager was in charge.
Ongoing Support Obligations To The Franchise Owners.
The franchise company is obliged to provide ongoing support to the franchise owners. But the reality is that if they had company owned locations rather than franchises, they’d have to provide even more support!
The preparation of a Franchise Disclosure Document is not overwhelming and the document doesn’t reveal any of the franchise company’s trade secrets.
But the relationship between the franchise company and the franchise buyer is a contractual one. Both sides have to live up to their obligations. Are there a lot of lawsuits in franchising? There are almost 1,000,000 individual franchises in this country. If lawsuits were happening all the time, there’d be no such thing as “franchising”.
Individual Location Success Rate.
While the success of an individual location may depend largely on the efforts of the franchise owner, the same could be said of a company owned location being dependent on the efforts of a company manager. The franchisee’s commitment should give an individual location a better chance of success as a franchise.
Dealing With Dedicated Owners.
This is a double edged sword. The franchise buyer is an “owner” and if the franchise company doesn’t provide the support that they expect, they’ll hear about it, unlike a company manager who “goes along with the program”.
The History Of Franchising
The roots of franchising can be traced to the end of the American Civil War and the Singer Sewing Machine Company.
But, franchising really started growing at the beginning of the 1900’s, when General Motors franchised dealerships. It spread through the automobile, soft drink bottling, and gasoline industries by the 1930’s. By 1950, 100 companies were franchising.
Modern franchising evolved during the 1950’s with the expanding post World War II economy, growing interstate highway system, developing suburbs, and increasing automobile ownership. A mobile American public traveled farther from home and sought familiar names with standardized service.
The high growth and emerging popularity of franchising in the 1950’s, 1960’s, and 1970’s encouraged the startup of a number of ill- conceived, get-rich-quick schemes, ultimately leading to several states regulating franchising in the early 1970’s. Regulation by the Federal Trade Commission followed in 1979. This regulatory activity helped legitimize franchising to the point that it is now a widely accepted method for business expansion.
During the 1980’s, franchising began a period of exponential growth. In 1980, approximately 1600 businesses franchised; by 2000, the number had more than doubled!
- Each year more than $1 trillion in goods and services are sold through franchises in the United States.
- 35% of all retail goods and services are sold through franchises.
- There are almost 1,000,000 individual franchise outlets in this country.
- Each working day a new franchise opens every 5 minutes.
- Over 300 different types of industries and businesses are franchising.
Such factors as, the movement from a manufacturing to a service economy, technological advances, and women entering the workforce, have provided expanding opportunities for people to own their own businesses. The growth of franchising has accelerated the desire for private business ownership.
What’s Driving Franchising’s Growth?
Franchising provides consumers with well-known, reliable, convenient name-brand products and services.
COMPANIES WANTING TO GROW
Companies need to grow to maximize sales and profits and to realize economies of scale and marketing efficiencies. Franchising provides companies with expansion capital, potential for high growth, dedicated local operators sharing the risks and costs, and better service to the customer.
INDIVIDUALS DESIRING TO OWN THEIR OWN BUSINESS
Changing economic, demographic, and social factors are encouraging people to own their own businesses. They seek to be free from the pressures of the corporate world, and to contrul their own destinies.
Here are some of the forces driving this desire to own a small business.
The Corporate Job Squeeze
Large companies aren’t loyal anymore. Faced with competitive pressures, even the best of large companies that in the past never laid off workers are now forced to do so as a result of corporate takeovers, leveraged buyouts, and increasing global competition. Employees increasingly feel “it’s every man for himself”.
Transitioning from a Manufacturing to a Service Based Economy
The developed countries of the world are being transformed from manufacturing to service based economies.
In the U.S. in 1900, 70% of the work force was employed in the production sector; 30% in the service sector. By 1950, the ratio was 50% / 50%, and now, 70% of workers are in the service sector.
Manufacturing derives its efficiency from big mass production factories requiring a large investment to set up, thus limiting the total number of factories and eliminating the opportunity for a middle income individual to own a factory.
Service businesses realize efficiencies on a much smaller scale and therefore there can be many of them. Since a smaller investment is required to open a service business, many more people can own one.
Additionally, large numbers of women entering the workforce, the growing elderly population, changing attitudes regarding convenience and quality, emerging technologies, and mass advertising have created a tremendous demand for services and have encouraged development of a wide variety of service businesses.
The Risk Takers
Members of the current generation are more likely to take the risk to start their own business.
- Per capita income in real terms has increased dramatically, especially since 1950.
- Women now comprise 50% of the work force. While this helps drive the demand for service businesses, it also provide families with two incomes and thus the financial ability to start a new business venture.
- The current generation is used to living on credit, doesn’t know about “The Great Depression”, and will take risks more readily than their predecessors.
- The civil rights movement, women’s movement, high pay for athletes, entertainers, and corporate executives, combined with increased education and more individual freedoms have resulted in worldwide democracy movements and individuals seeking their “fair share”. Individuals want to grab at the brass ring and fulfill their dreams.
All of the factors driving people to own their own businesses are also driving them to owning a franchise. Franchising offers these people opportunity with reduced risk. The high success rate of franchises, combined with the benefits of belonging to a network or chain, make franchising a very logical, attractive method of owning a business.
The Future Of Franchising
These are the major trends that we see in franchising in the near future.
Conversion of Company-Owned Stores / Restaurants / Offices / Sales Reps to franchising.
As companies become increasingly aware of the benefits of franchising, we predict many will turn to it.
The Entrance of Fortune 1000 Companies into Franchising.
Faced with a massive drain of the best talent and brains, large corporations will turn to franchising not only for its benefits, but also to “keep” their best employees.
International Franchising Will Boom.
With the world getting smaller, many U.S. companies will embrace franchising to expand overseas. More foreign companies, with their desire to tap the huge American market, will start franchising in this country.
Dollar Sales Through Franchise Outlets
Currently over $1 trillion in the U.S., we expect it to reach over $2 trillion by the year 2035.
Percentage of All Retail and Service Sales Through Franchise Outlets
Currently at 35%, we estimate that 40%-50% of all retail and service sales will be through franchise outlets by the year 2035.
Number of Franchise Outlets
Currently almost 1,000,000, we estimate this number will rise to over 1,300,000 by the year 2035.
Number of Companies that Franchise
Currently there are approximately 4,000 companies that franchise; due to the increasing awareness and popularity of franchising, we expect this number to grow to 6,000 by the year 2035.
Are You Thinking Of Franchising Your Business?
Franchising lets you sell your knowledge, experience, and concept to dedicated individuals who put up the money to open and operate new locations.
You’ll be able to expand faster with less overhead, freeing yourself up from day-to-day branch level operating headaches, and get the time to focus on growing the business while the franchise buyers pay you upfront franchise fees and ongoing royalties forever.
What We Do.
We help very small companies (and large ones) start franchising their businesses. Our experience, knowledge, personal attention, and quality of work are the best in this field and we’re recognized as the leading franchise consulting firm in the country.
All of the work we do to help you start franchising — Planning, Research, Disclosure Documents, Operations Control Manuals, Marketing and Selling Programs — is based on our many years of experience helping successful franchise companies.
We’ve Helped Many Companies Grow Through Franchising.
They’ve Sold SEVERAL THOUSAND Franchises.
No Other Franchise Consulting Firm Can Match Those Results!
We’re Here To Help Now, And In The Future.
What Makes Us The Leading Franchise Consultants?
Many Client Success Stories
- We’ve got many success stories.
- Our clients have been described by social media sites, The Wall Street Journal, Entrepreneur, and many other local and national media as being hot new franchise concepts.
Attention To You
- We help build our clients’ dreams.
- We’re always available to you.
- When you call us, we respond immediately.
- We have long relationships with each client.
- Clients respect us, trust us, and like us.
- No other firm provides the ongoing support that we do.
- We’ve been doing this for over 30 years.
- No other firm can match our quality.
No Cost Surprises
- We always work on a fixed fee with each client.
- There’ll be no cost overrun surprises to you unlike most law firms, accountants, and consultants.
Best Advice And Guidance
- We know the right ways to do things, the traps to avoid, and the secrets to success.
- If we don’t think you’re ready to franchise, we’ll tell you what steps you need to take before starting a franchise program.
- You only get one shot at being successful at franchising. You’ve got to do it right.
We’re Here To Help.
- Now… and in the future.
We Help Clients Grow.
And, We Take Care Of Them.
“First class, professional, and personal.”
“They are state-of-the-art franchise consultants.”
“Easily, the best in this field.”
“Each franchise consultant really knew their stuff, and was a pleasure to work with.”
“Great franchise consultants.”
If you wish to start franchising your business, call us. We’re here to help.
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