Franchise businesses are very successful around the world. They give companies the opportunity to grow and spread their brand without investing directly, and they give franchisees the possibility of launching a new business with a known brand, exploiting their name and products.
The franchise is certainly profitable for franchisors, but is it worth it even for franchisees, that is, for those who invest in the new store or retail?
So, is owning a franchise worth it? Keep on reading to find out.
Franchise Business Model: Subjects Involved
With the franchise business model, there is a company that gives a license to an external subject that allows them to use the brand name, open a new business using the company name and sell their products.
In this model, there are two main subjects involved: the franchisor and the franchisee. The franchisor is the main company that gives the franchise license.
The franchisee is the one who buys the franchise license and invests their money in the new business.
If you want to open a franchise business, you are the franchisee, and you may be wondering if it is worth it or not.
The franchisor doesn’t invest its own money any time a new business is open. On the contrary, they earn money because franchisees pay a franchise fee.
If you are wondering whether a franchise is worth it for the franchisee, you need to understand what is the franchise fee.
The Franchise Fee
When you buy a franchise license, you need to pay a franchise fee.
You are basically paying for the right to use the brand name in your own business. The franchise fee can be very expensive: it can even reach $50,000.
When you open a store on your own, you save money on the franchise fee: when you invest from $30,000 to $50,000 less, profits start coming sooner.
So, the real question is: is a franchise business worth it despite the franchise fee?
Know More About What Is Total Investment In A Franchise?
Check Deference Franchise Vs. Franchisee
Opening A Franchise Business: Initial Investment
When you open any kind of business, there is always an initial investment to be made. You need to pay for your location, furniture, supply, equipment, hiring people, and so on.
These expenses are, however, common to both traditional businesses and franchise businesses. The difference between the two is made by the franchise fee.
Because you also need to pay for the franchise fee, the initial investment for a franchise business is always higher than the one required for a traditional business.
So, is owning a franchise worth it?
Franchise Business VS. Traditional Business
When you launch a new business, your main effort is aimed at finding new clients, getting people to know about your brand, build brand identity.
Weeks, months, and in many cases, years need to pass before you have a stable clientele and your brand is known in town or in your country.
With franchise businesses, you can skip this passage: the day you open your store, the brand is already known, there are already affectionate clients that can’t wait to come, products are already known, and so on. You can have a stable clientele from day one.
So, this is the other side of the medal with franchise business: yes, the initial investment is higher, but the business can become successful in no time.
Is Owning A Franchise Worth It?
Now that we’ve analyzed the cons (having to pay a franchise fee) and pros (you launch an affirmed brand that can already count on an existing clientele), we can answer our question: is owning a franchise worth it?
In our opinion, it is: the business will start having clients and making a profit in no time, and that will repay the franchise fee in a short time.
However, there are also other advantages to owning a franchise business.
When you are asking yourself if a franchise business is worth it, you are, in fact, asking if paying the franchise fee is worth it.
And an additional investment is worth it when it can generate a return rather quickly and when it can help lower other costs.
The franchise fee can do both:
- A franchise fee, as we’ve seen, helps you generate quicker profits because it allows you to launch a business that is already known.
- A franchise fee allows you to save money on marketing: the brand is already known, and you don’t have to invest money in building a brand identity or getting people informed about the kind of services or products you sell.
- Franchisor often offers some type of financial assistance to their franchisee: it’s always easier to get funding when you launch a franchise business.
Because there are all these advantages to a franchise business, the answer to our main question is yes, owning a franchise business is worth it.
However, we don’t have to forget that with a franchise business, franchisees can have some limitations.
Also Read: What Is A Franchise Business Consultant?
Franchise business: Limitations For Franchisees
When you have your own store, you can do anything you want with it.
You can furnish it as you like, you can sell the products you like, you can hire the number of people you want, and you can buy equipment and supplies from any suppliers.
With a franchise business, there may be limitations: for example, you can’t furnish the store as you like, and you need to follow the franchisor’s requirements.
Their requirements can also involve the number of employees, the location, suppliers, and more.
Always take these limitations into consideration when signing a franchise contract.
In this article, we’ve analyzed the advantages and limitations of owning a franchise business.
We’ve seen that, with a franchise business, you need to pay a franchise fee, and there may be some limitations set by the franchisor company.
However, because of the many advantages, franchise businesses are still worth it because they allow you to lower some costs (for example, the ones related to marketing), and they are capable of generating a return on investment in shorter times when compared to traditional businesses.
Amit Gupta is an experienced expert in digital marketing and co-founder of DrFranchises. With more than 11 years of knowledge in franchise digital marketing, SEO, email marketing, and social media marketing, Amit has helped many brands achieve incredible success online. As a passionate entrepreneur and owner of 7 franchises, he continues to study franchise models, looking at costs, revenue, and profitability to guide brands toward profitable growth. When he’s not working on digital marketing, Amit enjoys spending time playing with his beloved dog.