From Aamco Transmissions to Zoup's, Inc., the business franchising format dominantly used today has a colorful and rich fifty-five year history. Decades ago, a few corporate types considered the franchise form of business start-up a new, better and possibly, a more profitable way to sell goods and services. It seems a few decades and several thousand franchise concepts later have proven them right! Worldwide, franchising continues to thrive. In fact, according to the International Franchise Association (IFA), a new franchise opens every eight minutes and close to 17% of world business is conducted through franchising.
Be it North America or Asia, Europe or Africa, franchising is a hot commodity. In the United States, there are an estimated 760,000 franchised businesses, employing nearly 9.8 million people and generating $1.5 trillion in annual economic output. Franchising is also growing at a rapid rate across Europe, with more than 170,000 franchised units, over 1.0 million employees and yielding a turnover of $100 billion annually. The business of franchising equates to 7.9% of total sales in China and produces 12% of Australia's GDP. Used in more than 70 countries, it is undeniably the most popular and fastest growing business model in the world.
Examples of some older, well-established franchises include 7-Eleven, Hair Cuttery, Jackson Hewitt Tax Service, Lawn Doctor, Maaco, Pizza Hut and The Athlete's Foot. Some of the newer franchises today include Geeks on Call, Ladies Workout Express and Zips (formerly Dry Clean Depot). These are all franchise opportunities, meaning that if you so desire, you may own and operate one of these businesses.
So what exactly is this franchise form of business activity with such a long history and seemingly bright future? A franchise - simply put - is a legal right or license granted to an individual or group (franchisee) to market a company's (franchisor) goods or services in a certain territory. In essence, a franchise is a way to start a business. The catch, or possibly hook would be better word, is that you don't have to conjure up the idea or develop any systems. The flipside is that you will always have someone else to answer to and you will always be obligated to follow a certain set of strict operating guidelines. You will be bound by restrictive covenants and will be required to sign a detailed franchise agreement. So in many ways, you are more like an employee, rather than your own boss.
Still franchising is a popular way to get into business, since it essentially provides a tested formula that has worked for others. It can save a businessperson from making costly errors, shorten his or her learning curve and help him or her make a profit more quickly. However, no business opportunity comes without a price tag. In order to make money, you will need to spend some money. There are start-up costs, including the purchase of the franchise itself (called the upfront franchise fee), the costs of leasing space, remodeling if necessary, buying equipment and paying for inventory.
In addition to the initial franchise fee, you will also be expected to pay an ongoing royalty, which is usually calculated as a certain percentage of sales. It can also be a fixed fee or a payment on a sliding scale. Regardless, this fee covers the franchiser's ongoing time and support, as well as paying for access to product discounts and promotions. Since you are using someone else's business and marketing strategies to make money, you will also be expected to pay a percentage towards advertising, which is known as co-operative advertising funds.
Like any business concept, franchising has its pros and cons, its' up and downs and may or may not be the right business model for you. For many who have traveled the franchise route, it has been their opportunity of a lifetime. For others, it has simply given them a license, which they paid for, to work. Before anyone makes the decision to own and operate a franchise, there should be more than a fair amount of research conducted - not only on the business side of things, but on the personal side as well. You have to ask yourself, "Do I have what it takes to run a business?" Part of that answer, you will find in your research. The other part of that answer is innate.
