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Business format franchising offers companies the following advantages:
Capital:
It takes a lot of capital to grow a business. After an initial investment in infrastructure
and advertising, franchisors begin to enjoy revenue from their franchise locations. Within a short time, the capital needed to expand the business is provided by the franchisees
Trained, motivated management:
Expanding a business takes experienced, motivated managers. Unfortunately, these are hard to find and keep. In franchising, the expansion is led by franchisees who are well trained in the franchise system, contractually tied to their businesses, and very motivated because their capital is at risk.
Efficiency and profitability:
Franchise units tend to be better run and more efficient than company-owned units, for the simple reason that Franchisees’ capital is at risk.
Rapid expansion:
The pace of today’s economy requires rapid movement. If a company doesn’t take its concept nationwide, a competitor will. Franchising is the fastest means of expanding a business.
Optimum size, optimum profits:
Maximum profits are realized by getting very large. Because there are few impediments to growth through franchising, it offers the opportunity to have 1000's of units through out the world, and no other business expansion model can offer that.
Greater buying power:
Franchising provides a great way to rapidly increase the number of units. The greater the number, the greater the buying power of the company. When a franchisor buys for the entire system, great savings can be realized. Bulk discounts enhance profit margins and gives franchisees a strong advantage over their competitors.
Ease in securing locations:
As a franchise system grows, the brand develops an image of importance and success. Landlords prefer to rent commercial real estate to well-known, successful franchises than to small independent businesses.
Market dominance:
With its costs spread across many units, a franchisor can undertake extensive advertising in a given market. A high density of units and pervasive public awareness can help win a company market dominance.
Reliable, maximal income:
With franchise fees and royalty payments, equipment and materials sales, service sales, property rental and vendor rebates and commissions, franchisors enjoy many regular revenue streams that only grow as the franchise system expands.
Business success:
Franchised companies are high profile, high growth enterprises that frequently become very large. They can go public or be bought by large conglomerates, yielding millions (if not billions) of pounds for their owners.
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