While franchising provides franchisees with a proven system and the support
of a much larger organization, the advantages to the franchisor are even more
significant.
Capital - Since franchisees use their own capital, the franchisor has
virtually no investment at the unit level. Franchising allows companies to leverage
off the assets of franchisees.
Return on Investment - Because of this lower investment, ROI will be
significantly higher.
Risk Reduction - With no capital invested in units, risk is reduced
substantially.
Limited Contingent Liability - The franchisor will not be signing leases,
taking on financing, etc., and will thus expand with limited contingent liability.
Speed of Growth - By leveraging off of the time and efforts of its franchisees,
a franchisor can grow much faster without adding staff.
Reduced Role in Day-to-Day Operations - As a franchisor, your primary
concern involves the franchisee's top line performance, reducing the scope of
your involvement in day-to-day management.
Reduced Liability - The liability for acts of employees (e.g., sexual
harassment, EEOC violations, etc.) and for occurrences in the unit (e.g., slip-and-fall)
accrues to the franchisee, not the franchisor, for the most part.
Highly Motivated Management - Franchising can provide a company with
highly motivated management who will treat individual units as its own.
Quality Control - Franchisees generally keep their units in better operational
shape than unit managers, and as a part of the community, are better able to
promote these units locally.
Long-Term Management - The franchisor can invest in the long-term training
of its franchisees, as they are unlikely to leave short-term.
Unit Performance - Units are generally better run, as is reflected in
the fact that franchised stores generally outperform company-owned stores in
terms of sales volume.
Lean Structure - Franchisors can grow the organization without adding
significantly to overhead.
Brand Building - This ability to grow the organization without substantial
additions to overhead will allow franchisors to grow their retail presence and
their brand more quickly and effectively.
Advertising - Franchisees will often contribute to a common advertising
and promotional fund. This fund will be used to promote the brand under the
direction of the franchisor.
International - International expansion becomes easier, faster, and
carries far less risk since a local partner becomes involved.
Moreover, it is important to note that franchising is not an exclusive strategy.
Most franchisors use it in conjunction with company-owned growth to compound
growth.
