Do you want to know why franchises succeed more? If YES, here are 11 reasons franchises tend to have better success rate than non-franchised businesses. When you decide to be your own boss, you are faced with many emotions and breathtaking decisions. There is a particular excitement that comes with running a successful business, making important decisions, establishing your hours, and working on your own terms.
But then there is this fear that comes with not knowing if you will succeed. The chance that your business could pack up and you could find yourself without a job and in a heap of financial debt can be frightening.
According to reports, new business owners are far more likely to succeed if they are part of a franchise system. Everyone in the franchise industry has known it for decades, but until recently there wasn’t a lot of data to show just how big a boost franchise systems provide.
Franchises have the highest success rates and the lowest failure rates of any business today! Over 95% of all franchises are still in business after five years because they all come with built-in proven success formulas used by franchisees across various countries.
However, success in business can mean different things to different people. It all boils down to choices and visions. If “success” to you means how many units don’t fail, this is easy to determine. In Item 20 of the disclosure document, the franchisor is expected to provide tables that identify every unit that has failed, been terminated or transferred during the past three years.
You’ll also find the last known contact information for any failed franchisee so you can pick up the phone and hear his or her story. Irrespective of what success means to you, here are key reasons why franchise businesses achieve more success than non-franchised businesses:
11 Reasons Franchises Tend to Have Better Success Rates Than Non-franchised Businesses
Table of Content
1. Brand Awareness
In the business world, there are two types of prospective owners – the owners who want an out of the box business and others who want to create and invent their own. However, when you acquire a franchise, you are buying into a brand that already has a presence and traction with its target markets. But when you start from the scratch, it’s always up to you to create your brand, establish and build your marketing system and your audience.
2. Decision Making and Control
With the franchising mode of business start-up, you are an independent owner making decisions for your business by applying the franchise model you bought into. This route to business start-up tends to succeed more because they are backed by research, a proven sales system, and establishment in the market.
These owners also have every right to call some of the shots because any action on your part doesn’t just put your business at risk – but the franchise as a whole. However, if you don’t like following policies and procedures set out by others, and would like to have full creative control with the opportunity to reinvent the wheel and make every decision for your business, then franchising is not for you.
3. Equipment and Supplies
When it comes to franchising, also note there is more influence and buying power among the suppliers and trades. Notably, the franchise has done majority of the work for you so you can have confidence in getting preferred pricing without compromising the quality.
But by starting from the scratch, you have to price shop and research to find the best price and quality of supplies, equipment, and contractors. You have very little bargaining power because it’s just one company as opposed to many.
4. Legal Disclosure
By law, a franchisor is mandated to disclose information to you about their business in documents that are provincially regulated.
If you are buying an existing business from an individual or building from the scratch, you have no sure leverage that they can be trusted. It’s more or less a leap of faith because if your seller goes missing in action, you have next to no options for justice. With a franchise, you have a fighting chance as they are active and present in the market.
5. Training and Support
Note that with a franchise, you will receive steady training and support. Every franchise is different and franchisees receive comprehensive initial training from marketing to administration to customer service and compliance.
The franchisor has a head office team to support all franchisees not only through their launch phase but throughout the duration of owning the franchise. As a Franchisee you also have the support of all the other Franchisees from new start-ups to veterans in the business. As an independent, you have to always find your own support network.
6. Product and/or Service Innovation
Have it in mind that creating and marketing a new product or service is a lot of work and investment. If the product or service goes bad, you lose money and time. Franchisors are always creating new products and assessing any changes they need to make to the service protocol.
These businesses are backed by historical data and performance of the franchises as a system taking their input into consideration as well. It always helps them decide on future marketing initiatives, any new alliances with suppliers, distributors and more. If a new product isn’t doing well, they have the foresight to stop the initiatives and cut their losses early on.
7. Site Selection
In terms of location, franchises have done all the research for you. The franchisors have ongoing relationships with site selection experts, real estate agents plus years of experience in finding the best sites for the brand. It is more or less their duty to help with landlord lease negotiations and more. When you are an independent business, all these processes are left to you to find the best site for your business, work with the real estate agents and deal with the landlords.
In terms of marketing, as an independent business you are a one man or woman show. It’s up to you to create your Marketing Plan and take action upon it. With franchising, you have the power of the brand’s reputation in the market that took time and a large advertising budget to establish.
9. Time is Money
Note that the turnaround time to launching a Franchise vs. launching your own independent company is very different. For instance, with a franchise, you have an out of the box feel. Things move relatively quickly from the time you sign the paperwork to the day you open your doors. As an independent, you are creating the wheel which can be time consuming, exhausting and drag out much longer than you expected.
10. Faster ROI
In addition, the return on investment can take a bit longer when you are an independent business vs. a franchise business. When you are a franchise people are already looking for you. Notably, you generate revenues the moment you open your doors.
When you are independent, you have to work at developing awareness. You don’t always attract customers right away. You are in the acquisition stage of your business launch. You will have to pay to obtain leads before you make the sales.
11. Exit Strategy and Resale Value
Should you decide to exit the company and sell, you have a more promising strategy owning a franchise than being independent. Note that a franchise brand has more buying power. If you have a hard time selling, there is a chance the franchise could buy your store and run it themselves until they find a buyer. As an independent, you often have to cut your losses and sell at a bargain basement price.
In conclusion, the secret to the success of most franchisors is that they make a lot of money for their franchisees. Franchisors whose franchisees become millionaires have no problems finding more franchisees.