How Franchising Works

Advantages of Franchising

According to the article "What is Franchising" by Robert Gappa, on the Franchise UPDATE Web site, there are over 2,500 franchise systems in the United States with over 600,000 units. This comes out to about 3.2 percent of all businesses, and 35 percent of all retail and service revenue in the United States.

The biggest advantage of franchising appears to be the reduction of risk you will be taking for your investment. This is because franchises typically get up and running faster, and are profitable more quickly. This can be a result of better management as well as a well-known name. According to the Small Business Administration (SBA), most small businesses fail because of weak management. It is in this area that the franchising option shines the most. When you lease a franchise, you are leasing that managerial know-how.

You also usually get better deals on supplies because the franchise company can purchase goods and supplies in bulk for the entire chain, and then pass that savings on to you and the other franchise units.

The often-instant recognition from customers is also a big plus. Customers are dealing with a "known" rather than an "unknown." Think about it: If you are driving through a town you've never visited before and have the choice of a "Billy Bob's Fried Chicken" or a "Kentucky Fried Chicken," which one are you more likely to stop at? Until you know that Billy Bob's is THE place for fried chicken, you may not want to take the chance.

For the customer, the advantages of a franchise include the comfort of knowing what you're getting. You know that the quality of the product or service at one location will be comparable to that of another location. You know what they have and you already know what you like about it. The questions for you as a potential franchisee are: Are you looking for something that is uniquely yours? Or do you simply want to run the show, regardless if it's by someone else's rules?

Before you answer those questions, let's go into a little more detail about how the franchise actually works.