What's The Biggest Difference in Franchise Models?
Updated: Nov 16, 2022
If you are considering franchising you may have already looked into a couple of different business models, systems, marketing divisions and general cultures. But what is the biggest difference when it comes down to franchise models? There are some very obvious factors that are calculated at the beginning of your research such as initial franchise fees, royalties, start-up, and ongoing costs, territory availability, personal interest, and Owner requirements. Let’s break this down. Initial franchise fees: This is most likely the first step in your franchise research journey and it should be! Part of being a great business owner is understanding the finances and metrics of the back end of your business. Initial franchise fees have many factors depending on the franchise organization however regular items included in franchise fees can be items such as a dedicated onboarding process with their staff, access to marketing teams and systems, entrance to a network of peers, and most importantly, the rights and pride of being a business owner within a strengthened organization.
Royalties: All franchisors will have royalties associated with their systems. These can vary depending on the system, franchisor assistance, technology, and brand. While generally, the average is around 8% some franchisors may charge anywhere from 5% - 15%+. It is important to understand that royalties hold the rights and use of the brand. It is the difference between “Pam & Joe’s Burger Shack” vs Mcdonald’s. While franchise fees were probably where you started your search, remember that a big reason many look to franchising is not only the franchise partner's support but the recognition of their business from their community. Start-up and ongoing costs: You will have start-up costs and ongoing costs. This is the general cost of the business in a franchise system or not. What is imperative here is that you are prepared and can budget accordingly. Franchisors can give a rough estimate of what the total costs can be but there is no guarantee for what happens in the future. With that being said, the first thing you need to do is plan a budget. Franchising is not “get rich quick.” It is leveraging systems and processes into your business to help scale and protect your business. Some franchisors have programs for designing your restaurant while others will let you operate as a home business. A good rule of thumb is to set aside a minimum of 1-year household expenses and 1 year of expected business costs while your business is starting up and getting off the ground. Territory availability: Be aware some franchisors may not have space in your backyard. This is a great sign. It means the franchisor has taken the time and due diligence to not over-saturate the market and given all franchise partners a fair opportunity. It is not uncommon for serious franchisees to move provinces in order to serve their location but might not always be necessary. Personal interest: If the business does not fascinate you, then that business is not for you! With the variety of franchise models available you may have to interview a couple of franchisors in order to find the right fit. Even if a franchise model has a turn-key system or you purchase a thriving existing location, the business will need your insight and input. A majority of the best franchise partners are obsessed with their business. Their industry updates dominate their social media feeds and they make time to be active members of their organizations. Owner requirements: While franchising can provide a wide array of training within the industry and business, you are still the most important factor in whether the franchise location will succeed or not. There are some great franchise models that do provide training from the ground up but this is a question you should bring to the franchisors you are interviewing. These are just a few of the topics you should be considering when interviewing franchise models. Each franchise system is going to have a different process to reveal its details to you but take your time in finding the right system. This is a decision that could change your life but some thorough research and a little self insight can lead the way.