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Growth Plans And Franchising: Growth Through Franchising

Growth through franchising is a tried and tested method for bringing in more revenue and creating wider market base. An alternative to opening additional directly controlled store or hubs for operations, it is more profitable and saves from the blues of the management problems. Growth through franchising enhances the brand value and generates more revenue essential for an enterprise. Growth through franchising is the preferred business model in the retail and restaurant sector all over the world. The outstanding success of companies, such as Burger King, Wendy’s, McDonald, Blockbuster Entertainment and Starbucks, are attributed to their growth through franchising strategy.

Meaning of Growth Through Franchising

If the market for your business is expanding, growth through franchising is the most suitable strategy for building your business. Etymologically franchising means, granting authorization to one to sell your company’s goods or services in a particular place. Growth through franchising involves three steps:

  1. Authorizing someone other than your own company or employee to sell goods and services in any particular area.
  2. Keeping the authority with you to decide brand management, terms and condition and quality of product. Power of supervision and decision to revoke the franchisee also remain with the parent company. It issues broad guidelines.
  3. The franchisee uses the brand name and products for business purpose by paying a mutually agreed fee. It retains the overall ownership of the store and drives the business according to the framework agreement. It decides on employee recruitment, local marketing strategy but purchases goods and products from the franchising company.

Finding Right Franchisee Crucial for Growth Through Franchising

Growth through franchising is an economical way for to expand your business. The franchisee will invest money and make necessary arrangement. It also pays a fixed one-time fee and makes arrangement for manpower on its own. Though growth through franchising strategy is very lucrative, certain things need to be taken care.

  • The franchisee should have adequate financial resources to invest. Growth through franchising replicates your business expansion with the help of other’s financial strength. Unless the franchisee has good financial condition, he may not be able to pay the royalty fee, purchase products from you, pay salary to the employees and ensure marketing success.
  • Never grant a franchisee only on the basis of his capacity to pay more royalty. Consider his ability to generate incremental flow-thru profit, which is the main objective of growth through franchising. For this the franchisee should have proper understanding of the market forces, ability to win customers and make product available.
  • Infrastructure of the franchisee should be given due consideration. The location of the store, transportation and communication facilities and availability of trained workforce matters a lot.
  • Also it is pertinent to check that the franchisee has interest in the business of product and services you are offering. Ensure that his employees are properly trained in customer dealings, handling products and other necessary areas.

Pattern of Growth Through Franchising Strategy

The franchising company can chose between slow-growth and fast-growth pattern to ensure growth through franchising. The slow-growth pattern is suitable for those looking for steady, gradual growth through franchising. Under this system, the franchising company offer support to its franchisees in marketing, choosing right location, personnel training, and financing. It means building everything from scratch in a gradual manner. It ensures better brand marketing, long-term business plans, well-trained professional employees and solid business foundation. However, it demands a lot of attention and resources by the franchising company. The franchisee also may experience less autonomy in day-to-day operations. They have to dole out higher fees for getting support and may receive slower returns on their investment for long time to come.

On the other hand, fast-growth pattern fuels better growth through franchising. It usually comes with lower franchise fees and aims at capturing fast emerging market potential. Franchisees enjoy more autonomy and flexibility but are left to build things on their own. It is very good to start if your franchisees have experience and proper infrastructure. However, if the franchisees are raw and unable to handle the services, you may suffer from brand disrepute. Though it will catch on hot sales in the beginning, any recession or saturation may create panic among the franchisees due to lack of proper market strategy.

Problems in Finding Good Franchisees

Finding good franchisees is the key to ensure growth through franchising. However there are several hindrances in finding a good franchisee.

  • Many people are reluctant to dole out huge sums of money in the beginning required for building proper infrastructure and marketing campaign. They usually want the franchising firm to support them.
  • A franchising firm faces problem in selecting the candidate with right mindset and interest. People without adequate experience may tend to exit from the business if face recession.
  • Inexperienced franchisees demand more attention and impact growth through franchising.

Advantages of Growth Through Franchising Strategy

Growth through franchising is the perfect way to expand your business. This strategy overcomes the need for large amount of capital required for expansion and maintaining large overhead. Instead the amount generated franchisees can be used to repay the bborrowed capital. Growth through franchising strategy saves from large time and expense requirements. The foremost advantage of growth through franchising strategy is that one needs not to be worry of mmanagement problems, control mechanism, supervision demands, difficulty in recruiting personnel and having managers for field offices.

Growth through franchising strategy helps to expand your business with limited capital and overhead. You can generate finances through capitation fees and incremental flow-thru profit and invest it further to enhance the quality and brand marketing of your products and services. It improves your financial stability. The franchising firm can treat employees at franchisee firms without having to pay them. It can entrust them with various duties and also use them in different areas to further business interests. Thus you can use money, talents, contacts, ideas, and resources of others to your business advantage. Growth through franchising strategy thus ensures real growth without any additional liability.