So you’ve got a business that suits a franchise model? Congrats! Before you dive in and start recruiting your first franchisees, consider these top tips from our franchise specialists.
Before we begin, it’s worth emphasising that franchising a business isn’t easy and there are risks involved for those who get it wrong. Are you still asking yourself, is my business franchisable? Before you embark on this adventure, make sure you know the answer to that question and that you understand the pro’s and con’s of franchising.
Know the Key Elements to Franchising Your Business
Once a franchise agreement is signed it’s very difficult to change, so it’s critical that you understand every element and what impact it will have on the overall franchise network, as well as individual franchisees and you, the franchisor. Getting the below right will give you the best shot as franchise success.
1. Franchise Fees and Royalties
Determine what the franchisor will charge the franchisee to operate their location. There are different options available including fixed-fee, tiered structures, or a percentage of revenue, which is the most common.
2. Marketing Fees
Franchisors can charge franchisees a marketing levy, which is audited and legislated annually and must be spent on advertising and marketing to benefit the network.
3. Product Strategy and Supply Chains
Let’s say we’re franchising a pizza restaurant. Each franchisee needs to buy cheese. The franchisor could secure a wholesale deal from a cheese supplier and then put a margin on it before selling and distributing it to franchisees.
Alternatively, they could sell the cheese at cost price, but collect a rebate from the supplier for purchasing large quantities. By law, franchisors must tell potential franchisees about supply arrangements. They also need to let them know about any rebates and financial benefits.
4. Business Systems and Software
Determine and discuss important operational decisions like who owns the leases of new locations, who pays for software subscriptions for things like inventory and workforce management, how social media accounts will be created and managed, how payroll will function, and how leads will be generated and managed in a CRM.
5. New Site Start-Up Costs
How will you charge new franchisees fees associated with opening a new site? New site start-up costs can be significant if site fit-outs are involved. Determine who will pay these or it you’ll charge a fixed new-site set-up fee. Will training be involved for new franchisees and how will these costs be covered?
Franchising Your Business Isn’t Easy
It’s critical to know the expected outcomes of these decisions before all of the above are locked into a franchise agreement. Before you decide on franchising your business, speak to our team of multidisciplinary franchise consultants.
We’ve worked with a lot of well-known brands within the franchise industry and act on behalf of both franchisors, franchisees, and owner-operators, so if you’re ready to explore franchising your business, meet our franchise advisory team.
