Franchising enables you to grow your business and build your brand.
In Part 1 we looked at branding and business systems.
In this article we look at whether the $ will work if you franchise your business.
What is the market for my product or service?
Consider who your current customers are and why they buy from you. If possible, segment your customers into different demographics. Look at age, gender, income and occupation, and demographics.
You can also segment your customers using psychographics including values, lifestyles, interests and behaviour.
Also consider your competitors. Who are their current customers? If you franchise your business, will you be targeting the same market as your competitors?
Once you have analysed your customers, consider your Unique Selling Proposition (USP). Your USP is your point of difference. Knowing and marketing your USP is important to not only attract customers to your brand, but also to attract franchisees.
Ideally, your USP should solve a problem for your customers.
Once you have looked at your current market and developed your USP, consider whether you can broaden your market, what your target market will look like and where your target market will be located.
Is the market for my product or service sustainable?
There is no guarantee that the initial demand for a product or a brand will be sustained. The life cycles of products and services may be shortened by technological advances and new competitors may enter the market.
When considering the sustainability of the market for your product or service, you should again consider your target market and your USP.
Unsurprisingly, brand loyalty plays a big role in brand longevity.
Do the $ work?
Is the business going to work for both you and the franchisee taking into account royalties, advertising fees and the purchase of goods or services from third parties?
To answer this question, first prepare a business plan for the business in its current form (if this has not already been done).
Then incorporate royalties, advertising fees (removing any advertising costs incurred by the business in its current form) and any other regular fees which may be included in a franchise model.
Royalties are ongoing fees paid by the franchisee to the franchisor for the use of the brand and intellectual property. Royalties vary but are generally between 4% and 6% of gross turnover for retail franchises and 6% and 10% of gross turnover for service franchises. A royalty can also be a fxed fee.
Advertising fees are ongoing fees paid by the franchisee to the franchisor for group advertising and related expenses. Advertising fees vary but are generally between 2% and 4% of gross turnover. An advertising fee can also be a fixed fee.
Advertising fees are paid into a separate marketing fund which is required to operate in accordance with the Franhcising Code of Conduct.
Some franchisors continue to operate the business which the franchise model is based on. If you will be continuing to operate your business, you must contribute to the marketing fund at the same rate as each of your franchisees.
In addition to forecasting whether the current business can work as a franchise, you should also prepare a projected profit and loss statement for your franchisor business.
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.