Are Franchises Really More Successful Than Independent Businesses?
We hear a lot of questions on this topic. Is there an accurate answer? Let’s look at some of the data. According to the International Franchise Association, franchise companies often have a revenue advantage over independents. Sometimes a very large advantage. In the food and retail sectors, for example, franchises make up only fifteen percent of the business units, but they receive 40% of the revenues. Do the math – these franchisees average much more revenue than the typical independent business. This seems like a huge difference. Is there any logic to it? Of course there is. If not, why would thousands of people thoroughly research franchises each year and then decide to invest? No rational person would pay the franchise fees required to open a franchise unless they saw a clear benefit to the franchise system. What kind of advantages are there? We usually focus on three: 1. Franchises provide a proven system. They have already figured out what works and what doesn’t. They know what demographics need to be, how many employees you need, what kind of advertising works best. The franchise company learned their lessons the hard way – by making expensive mistakes. They already tried advertising that doesn’t work. When you become a franchisee they will share this information with you. In a snap, you have access to all of that learned experience. 2. Franchises provide support and training. Remember, the franchise companies make more money when the franchisees make more money. They have every incentive to help the individual franchisee succeed. Good franchise companies get this. Because of this, most franchise companies have employees with the sole task of supporting the franchisees. Typical areas might be IT support, Sales Training, Advertising, Accounting, and Human Resources. Imagine the cost of an independent business trying to hire experts to give advice in all of these areas! 3. Before you invest a single dollar into a franchise, you can find out all about it. This is the advantage that gets people’s attention. With an independent business you have to make a lot of assumptions as you do your business plan. You really have no way of knowing if those are realistic. With a franchise, there are many other franchisees who have already started this exact same type of business. They are all a resource to you. As part of your research you have the right to call as many of the existing franchisees as you like and find out what their experiences have been. It is a federal regulation that the franchise company gives you a list of every franchisee, including the phone number. You have no need to make an assumption that might not be accurate. If you aren’t sure, just ask some existing franchisees. They will tell you if you are on the mark or not. These are some of the reasons franchises are more successful. But let’s look at actual data. According to a study by the accounting firm Arthur Anderson, 96.9% of franchise units were still successfully in business five years after opening. Similarly, a study by the U.S. Small Business Administration found the average franchise had five times the first year revenue of the average independent business. If you think about it, it all makes sense. We would all expect a business with more support, more training, and a more proven way of doing business to have the best chance of success. It turns out the numbers back this up: Franchises are more successful than independents.

Your Next Step

First, watch my short video below where I elaborate a little more on this topic. Then, opt in on the next page to receive access to my FREE video archive. This library includes eight different tutorials that will teach you how to own a franchise the right way. Franchise versus independent business image from Shutterstock
Get Some Leverage
Sign up for The Work It Daily Newsletter
Follow
People working at a call center
Bigstock

“Do you really want to work in a contact center?”

Let’s be honest: five-year-olds don’t dream about working in a contact center when they grow up. Proud parents never boast about their children working in contact centers. Teachers at private schools never recommend students to work in contact centers.

Read moreShow less
The Data Science ROI Of Moving To The Data Lakehouse
iStock

Many CDOs/CDAOs (and even CMOs) have raised some interesting questions about these three data management and data science titans: Snowflake, Databricks, and DataRobot. Some of the questions include:

  • Can Snowflake replace the CDP?
  • Do I need Databricks if I have ML Ops capabilities or other capabilities that are similar?
  • What is the difference between DataRobot and Databricks?
  • How do we prevent the siloing of marketing data and smooth access by other domains?
Read moreShow less
Featured