We make franchising the most organic and optimal funding source.
Franchising permits your company to grow with capital invested by individual franchise owners. Franchising permits multiple units to be opened simultaneously, gaining a foothold over would-be competitors. For the majority of our clients, the amount they invested to franchise their business with us, was recouped through the sale of the first two to three franchises in less than a year.
A franchisor who hopes to reach a mature and successful stage of development must structure the initial franchise fee and royalty to facilitate rather than hinder the entry of qualified franchisees. Your continuing fees should permit the franchisee to price competitively, maintain quality and make a reasonable profit on his investment. Some franchisors desire an initial high profit, thus they make onerous charges that are incompatible with sound business practice. The methods by which you obtain revenue from franchisees is the most crucial factor.
Licensors / Franchisors can charge royalties based on a percentage of gross revenue derived by a licensee / franchise. We construct elaborate mathematical models to compute a fair or optimum royalty. Royalties are based on factors, such as:
- Net profits, gross sales, or net sales.
- Royalty minimums or maximums or floating based on averages.
Getting a slice of sales money is only one of the ways franchisors get paid. A large influx of cash comes from mandating your franchisees to buy certain products to run their business—ingredients for making products, equipment, promotional items, etc. When the franchise owners inevitably buy those things, you have a bigger franchise network with larger orders for vendors and suppliers. You can negotiate for volume discounts to vendors and suppliers. A portion of this saving by recruiting new franchisees, will give you higher operating margins and a competitive advantage over similar businesses.
Also franchise locations may operate better and more profitably than “company owned” units. Once again, this is due to the fact that a highly motivated owner is running your business rather than an employee. With their own capital at risk, franchisees are much more motivated than employees and perform at their highest levels of efficiency.