The Franchise King®

The Franchise King®’s Complete Introduction To Franchising And Franchise Ownership (With Updates)

introduction to franchising

What follows is my complete introduction to franchising and franchise ownership.

I encourage you to take the time to read this (hopefully!) easy-to-digest, information-packed franchising introduction in its entirety. Why?

Because if you’re going to invest in a franchise, it’s crucial for you to get a complete understanding of the business of franchising. You need to learn how the franchise business model works. Plus, you need to find out if franchise ownership is right for you.

In addition, you need to understand the risks involved.

That way, you can make a smart decision on owning or starting a franchise.

Let’s begin!

P.S. Don’t forget to bookmark this page so you can come back to it when needed.

 

What You’re Going To Learn About In My Complete Introduction To Franchising

  • The history of franchising
  • Definition of a franchise
  • The rules in franchising
  • Investment amounts
  • The pros and cons
  • Franchise facts/fiction
  • Franchising a business
  • Franchise choices
  • Being an “Entrepreneur
  • Should you buy a franchise?

And a whole lot more. Ready? Let’s begin.

 

An Introduction To Franchising: The History

The Clothes You Wear

franchising introduction retail store

The history of modern franchising has to do with what’s on your body. I’m speaking of your clothes. Stay with me.

Almost without exception, most franchise experts agree that the modern business model of franchising can be traced back to an entrepreneurial giant by the name of Isaac Merrit Singer. As in Singer Sewing Machines.

The 1800’s Were Tough

garment workers 1880's

(Image courtesy of Wikipedia)

In the latter part of the 1800’s, there was nothing “automatic” about clothing manufacturing. Believe it or not, everything was stitched together by hand, in not very ideal working conditions. The women who did the sewing worked incredibly long hours.

That said, Isaac Singer was basically the first person to patent a practical, widely used sewing machine. Though these machines started to appear on the scene in the mid 1800’s – and worked pretty well, Singer came up with an idea that made them work even better. A lot better. Good enough to sell. But, they were really expensive. At $120 each, Singer sewing machines were out of reach for most Americans. Idea time!

 

A Couple of Fixes From Mr. Singer

A couple of things happened. And they would change everything.

First, one of Singer’s business partners came up with an idea to make these newfangled machines more affordable. His idea; monthly payments. Customers would pay for their sewing machines using an installment plan…the first of its kind. And because of this amazing financing idea, everyday people could now afford Singer’s sewing machines.

As a result (and in short order), Singer was able to sell a lot more machines, and that was a great thing. But, he still needed a better distribution method. And being the entrepreneur he was, he figured out just how to do it. Specifically, Singer and his partners came up with a (brilliant) licensing arrangement.

In this scenario, the Singer business team would find business-savvy people who were interested in owning the rights to sell these amazing machines in specific geographical areas (territories). In order to get the rights, they’d would need to pay an up-front license fee.*

*Today it’s known as a Franchise Fee.

franchise fees

Secondly, in addition to selling the machines, Singer and his team decided that they would require new licensees to teach consumers how to use the machines they had just purchased. Good stuff. Transformational stuff. And they sold a lot of licenses. Enough to continue funding the manufacturing of the machines.

So now they had both manufacturing and distribution. In a nutshell, it was a distribution network in the form of licensees.

Sound familiar? It should. Because when you buy a franchise you’re essentially buying a license. In other words, franchisees are actually licensees.

 

A Bit More Franchising History: The Early 1900’s

Undeniably, the invention of the automobile changed everything.

model-t automobile

Finally, there was a way for people to get from point A to point B in hours as opposed to an entire day or more. But how could the early automotive pioneers get more automobiles built? And how could they distribute them once they were built?

Mass production was how they got more automobiles built.

Distribution-wise, these entrepreneurs decided to put togehter Automotive Dealerships-later called franchises, to sell their automobiles.

The First Two Dealerships

Bill (William) Metzger was the person who built and opened the first independent automobile dealership in Detroit, Michigan. That happened in 1896. Interestingly enough, he sold electric cars.

Next, a businessman by the name of H.O. Koehler opened an automotive dealership. He sold Winton (gas-powered) cars.

In essence, those two men were the first automotive franchise owners. And now Henry Ford and the other businessmen who were manufacturing automobiles had a serious distribution system in place. They put these automobile franchises all over the country. And they’re still around. In fact, there’s probably an automotive franchise within a few miles of your house.

FYI: My first exposure to franchising was when I was hired by a local automotive franchise. Eventually, I was promoted to management.

 

Franchise History: A Food Franchise Is Born

If it wasn’t for a gentleman by the name of Ray Kroc, franchising may not have become what it is today.

(Ray Kroc is on the right)

Kroc’s McDonald’s restaurants been dotting the landscape near exit ramps of just about every major freeway since the 1960’s. His franchises.

Kroc was a man on a mission, and he built one heck of an empire.

A lot of the techniques having to do with maintaining proper inventory levels, locating and building out real estate for location-based franchises and more, can be traced back to Kroc. If you’d like to read more about McDonald’s founder, Ray Kroc, go here. He was an interesting guy.

 

What is A Franchise? The Definition

The UPS Store franchise pictured

A franchise typically involves the granting by one party (the franchisor) to another party (the franchisee) the right to carry on a particular name/trademark, according to an identified system, usually within a territory or at a location, for an agreed upon term.

To continue, the franchisee is granted a franchise license to use the franchise company’s trademarks, systems, signage, software, and several other proprietary tools and systems in accordance with the guidelines in the franchise agreement. Got it? (You won’t be penalized if you didn’t understand that paragraph. I read it 3 times myself)

In a nutshell, the franchisor came up with a specific, proprietary idea for a service/product, and is granting people-franchisees, the right to market it for the franchisor. And since it is the franchisors idea, they require you to market it in a specific way.

Finally-and this is important, it’s their system, so they get to write the rule book.

 

The Rules in Franchising

To begin with, the rulebook in franchising is the operating manual. That’s what you’re required to follow when you own and operate the business.

In like manner, the other rules come from (the always difficult to read) franchise (contract) agreement.

Now, not only do you need to do things their way, you need to pay an upfront Franchise Fee (license fee), plus ongoing royalties. These royalties are usually in the form of a percentage of your revenue, although sometimes the royalty is setup as a flat monthly fee.

In addition, there’s almost always a marketing fee paid monthly along with the royalties (normally 1-2% of sales).

franchising royalty percentages

That said, I’ve seen royalties that are 4% of sales…all the way to 15% or more. It depends on the type of business.

For instance, food franchises and retail franchises are usually at the low end of the royalty percentage scale, while B2B franchises-like coaching franchises, tend to be on the high-end.

Franchise Fees* range from $20,000 up to $75,000 or more.

*It’s important to know that if you decide to work with a franchise “consultant,” the Franchise Fee you’re paying (for the franchise he or she matches you too) may be higher that normal. That’s because some franchisors raise their Franchise Fees so they can pay consultants a portion of them.

To learn more about how franchise consultants really work-how much they make, and why they offer their services for free, read this.

 

More About The Rules In Franchising

A franchising introduction wouldn’t be complete without talking about thr rules. This part is important.

The business model of franchising brings with it a totally different set of issues.

Not only must you be somewhat of a risk taker, but you must have absolute faith in the system you are investing in. But there’s more than just having faith.

Those words are from an article I wrote for The U.S. Small Business Administration’s website.

Along with that faith, and a great deal of proper due diligence and fact gathering, there is one other thing that tends to be overlooked. What is often overlooked is what I call, ‘a franchise personality’. What I mean by ‘franchise personality,’ is that the person purchasing the franchise is comfortable with rule-following.”

To that end, would you like to know if you have the right type of personality for franchise business ownership? If so, check out my Free Franchise Quiz. (Enter your email below so I can send you your score)

Take This Free Franchise Quiz
Find Out If You Should Own A Franchise Before You Write That Big Check
Invalid email address

 

Over 6700 people have taken The Free Franchise Quiz since I created and launched it waaaay back in 2006. And I’ve tweaked The Free Franchise Quiz over the years to keep it current with franchise industry trends and the like-so that it’s not dated.

Note: The quiz is not a scientific quiz-but it works everytime, as long as you answer the quiz questions honestly.

With that said, don’t base your answers on what you “think” they should be in order to score on the high-end of the grading scale. You’ll only hurt yourself (financially).

One more thing:personally score each quiz.

That’s right; I don’t use a software program to score your quiz.

That’s because what you’re thinking about doing-buying a franchise, is a big deal. I’d feel guilty if I used a computer program to score your quiz.

 

Why Franchising Isn’t for Everyone

franchising is not for everyone

Franchising is a proven business model. It’s worked for many businesses and many people. But, franchising isn’t the right business model for everyone. As a matter of fact, business ownership in general isn’t for everyone. In my hardcover book, “Become A Franchise Owner!,” I actually suggest that “Franchising isn’t for most people.” But why?

Franchising isn’t for most people, because: 

  • Most of us don’t have the courage to walk away from a job that provides us with a steady paycheck 
  • Most of us don’t tend to look at non-traditional career options when we lose our jobs
  • Most of us don’t have the courage to sit down and write a large check to a franchise company so we can become our own boss
  • Most people avoid risk whenever they can. And lots of people avoid change

Speaking of risk…

Here are a few questions you can ask yourself about risk.

  1. Do you consider yourself to be a risk-taker?
  2. Do you look “outside the box” for solutions to problems?
  3. What keeps you up at night? What are your feelings about money?
  4. If you’re married, how does your spouse feel about risk…risking some of your money?

Important!

Make sure you involve your spouse-or significant other early-on in your search for a franchise to buy. Why?

Because you definitely don’t want to spring something like potential franchise business ownership on them. They’re going to want to know that there is risk involved. And you’re going to want their backing.

As a matter of fact, you’ll need their backing. Their support.

Finally, here’s what you’re really doing when you buy a franchise:

 

 

 

Your Investment: How Much Do Franchises Cost?

Today’s franchise opportunities require a total upfront investment between $100,000-$15,000,000 or more. (That’s not a misprint)

With that in mind, you should know that the lower end of the investment spectrum consists of franchise opportunities that are home-based or small office based. Examples include travel franchises, business consulting/coaching franchises, home-services franchise opportunities, and pet-related franchises to name just a few.


franchise investment amount

On the opposite end of the investment spectrum, you have food franchises, full-service restaurant franchises, motel and hotel franchises, retail franchises and more. A lot more.

Tip: Go to Franchise Direct.com and click the“Investments” tab on the top of the homepage. That’s where you can search for franchise opportunities based on their upfront investment amount. (Disclosure: Franchise Direct has been a strategic partner of mine for years.)

The Pros And Cons Of Franchising

complete into to franchising and franchise ownership including pros and cons

An introduction to franchising wouldn’t be complete without looking at the pros and cons of becoming a franchise owner. Because nothing is perfect. There’s no perfect scenario.

That said, learning about the pros and cons of owning a franchise business is important, as it helps put what you may about to do in perspective. Let’s start with the pros.

 

The Pros Of Owning A Franchise

There are lots of positive things that the business model of franchising brings to the table. Here are a few of them.

  • Systems. There are business systems in place for you to use…to follow. You’re basically getting a business blueprint.
  • Training. You’re provided with formal training so you’ll know everything about running your business. You may even get pre-training online.
  • Technology. Today’s franchisors have access to great technology. And you, as a franchisee, will have access to it too.
  • Some of it could be game-changing…things that local independent competitors in your area can’t touch.
  • Marketing/Advertising. Your franchisor has (proven) marketing plans and advertising templates that will help you get your name out to the public in your geographical territory.
  • Support. Your franchisor has support systems in place; from in-house personnel to field reps who will visit your franchise business in-person and virtually. Don’t be shy; if you need help, ask! You’re paying for it anyway, in the form of your monthly royalties.
  • Real Estate Department. Your franchisor has resources in place to help you with site selection, store design, and more.
  • A Network. There are other people who, like you, who have invested in the franchise opportunity. They (your fellow franchisees) have experienced real-life business issues and can help you out when you have issues you need addressed. And some of your fellow franchisees may end up becoming life-long friends. (Really!)

Can you think of a couple more pros of franchise ownership? I can! Look:

  • Equity! When you’re a franchise owner, you have a unique opportunity to create equity in something. Specifically, wouldn’t it be nice to be able to have the opportunity to be the seller of a profitable business? Your business?
  • Legacy. What if your children could take over your business? Keeping things “in the family” sounds like a plan to a lot of people who are looking at owning a franchise

Now let’s look at some of the cons* of owning a franchise.

*Some of the “cons” are negative-energy items. In other words, there are some things in franchising that are looked at negatively by people who have pre-conceived notions about the business model.

 

The Cons Of Owning A Franchise

franchising cons

Now, the franchise model does have cons. We don’t live in a perfect world, and franchising is not perfect! Here are a few of them:

  • You need to pay an upfront Franchise Fee for the right to use the franchisor’s systems
  •  You’ll have to pay a percentage of your revenue to the franchisor on a regular basis (Royalties)
  • You must follow the franchisor’s rules (This is not optional!)
  • You may need to buy products and services from the franchisor or their approved vendors
  • You need to use the franchisors logos and advertising materials (Only)
  • When you sell your business, the franchisor needs to approve your buyer
  • You’ll (probably) be required to pay into a national advertising/marketing fund

Let’s continue. This next part is important.

 

Something To Remember About Franchising

It’s important to remember that when you buy a franchise, you are investing in someone else’s system-someone else’s idea“baby.” The key words here are “someone else’s.” But you have a choice. Scratch that!

You Actually Have Two Choices

If you want to be your own boss, you basically have two ways you can go about it.

1. You can come up with a product of service of your own and invest an unknown (and potentially unlimited) amount of your own money into your idea. Ever hear of a bottomless pit?

Of course (most likely) you’ll make a ton of mistakes, which will probably end up costing you even more money. But, if your business idea does work, it’s all yours. That’s good. You win!

2. You can leverage someone else’s systems, tools, and business acumen.

By doing so, you’ll be able to open and ramp up your business faster than a pure startup.

In this case, your focus will be on fast growth, instead of trying stuff again and again until you find something that works.

In addition, you’ll know exactly (within reason) what your upfront and ongoing costs will be-before you pull the trigger. That’s good, too!

To sum things up, the business model of franchising is not for everyone. There are pros and cons to investing in this type of business. The pros just need to outweigh the cons.

 

Important Franchise Industry Update

Something major has happened between the time I wrote this introduction a few years ago and now. And it’s affected the franchise industry in a big way. I’m referring to the Coronavirus (Covid-19) outbreak.

the 2020 pandemic

The good news is franchising-as an industry, is quite diverse. There are several different sectors. That’s helped the industry hang in there during the Coronavirus, and in some cases thrive.

To show you what I mean, I’ve picked a few articles focused on how my industry has been affected by the Coronavirus, including how a marketing client of mine adapted their franchise model to help their franchisees make it through.

Coronavirus And Franchising

Delivery And Franchising

The Coronavirus And Franchise Sales

How To Find Pandemic-Proof Franchise Opportunities

Snapology Updates It’s Business Model

 

Franchise Opportunities

Over 3,500 different franchise opportunities are available. 3,500! That’s a lot of choices.

Because of that number, I’ve found that listing franchise opportunities in categories is the best way to go. It enables you to think about business sectors as opposed to specific franchise brands. Then, once you’ve identified a few sectors of business you’d like to learn more about, you’re able to dig into them and start learning about specific franchise concepts contained in them.

In view of that, I’d like you to take a look at the list of franchise sectors I’ve put together for you.

To be sure, the list I put together isn’t an exhaustive list. But it is a good starting point for you to “see what’s out there.”

Some Franchise Sectors And Opportunities

  • Restaurant franchises
  • Casual Food franchises
  • Ice Cream-Frozen Yogurt franchises
  • Computer Services franchises
  • Automotive franchises
  • Moving & Storage franchises
  • Marketing franchises
  • Tax Services franchises
  • Home/Commercial Security franchises
  • Remodeling franchises
  • Handyman franchises
  • Painting franchises
  • Residential cleaning franchises
  • Sales/Management Training franchises
  • Accounting/Bookkeeping franchises
  • Optical Store franchises
  • Hearing Aid franchises
  • Senior Care franchises
  • Commercial cleaning franchises
  • Mobility franchises

And many, many more!

So now that you have a list of franchise sectors and opportunities in front of you, I recommend using some of the ideas above to start looking around a bit. Get your feet wet. One place to do that is Franchise Direct. Why?

Because Franchise Direct is a highly organized, easy-to-use website. All types of franchise opportunities are listed, including ones from the list I created.

Go there now and start exploring!

 

Franchise Facts. Franchise Fiction.

One thing you’re going to find when you start searching for franchise opportunities online is that you’re a target.

marketing overkill

(An overwhelmed prospective franchise buyer)

When I say “target,” I’m referring to the fact that all of a sudden, you’re going to find yourself bombarded by marketing messages and ads from the franchise community. The trick is to learn how to separate fact from fiction.

Recommended Reading: The Top 10 Alternative Facts About Franchising.

In addition, you’re going to start noticing a lot of cute franchise sayings and catchphrases. I’ve listed a few of them below, along with a few tips on how to use the franchise business model to your advantage.

 

5 Franchise Catchphrases To Watch Out For

#1 “You’re in Business for Yourself, But Not by Yourself.”

That’s one of the most-used catchphrases in franchising.

The good news is that for the most part it’s true. Just don’t expect the franchisor to be at your beckon call the second you feel you need assistance with something. You’re going to have to figure some of things out on your own-or with help from the franchisee network.

franchise headquarters support

That said, you should expect to have to think on your feet. It’s what all small business owners do.

What’s more, because you’re part of a franchise system, you’ll have plenty of business tools available. When you’re experiencing problems, you’ll be able to use them as needed.

The Bottom Line?

All small businesses have problems and issues that arise every day. But being a franchisee can be a serious advantage when it comes to dealing with them.

Again, that’s because you’re provided with a blueprint for your business; the franchise operating manual. Most of the answers to your everyday problems can be addressed just by opening the manual and finding the section that pertains to the issue you’re experiencing. And, if you can’t find an answer to your problem in the manual, don’t fret; you can always call franchise headquarters for help. That’s what they’re there for, and it’s one of the reasons you pay your franchisor a percentage of your sales every month. It’s called franchise support.

turnkey franchse business

#2 “Franchising is a ‘turnkey’ business.”

Some franchisors tout that they offer a complete “turnkey business” and that they’re easy to own (because they’returnkey).

Here’s an example of what I mean. Take a look at this franchise advertisement:

Be Your Own Boss! Invest in a Turn-Key Opportunity!

Join Hundreds of Satisfied Franchisees!

See what I mean?

Fact: No legitimate business is “turnkey.”

Instead, if anything, it’s the business system itself that’s the “turnkey” part. Not the actual business.

Know this; you’re going to be the one “turning the key.” Every day.

 

More Franchising Catchphrases

#3 “You’re buying a ‘business in a box’

Another thing that’s bandied around in franchising is that when you purchase a franchise, you’re buying a “Business in a Box.”

Well, you’re not…although it sounds nice. There’s no such thing.

Question: What do you “see” when you hear the“Business in a box” phrase?

Here’s what I see: I see a business that’s already set-up, but it just needs someone to buy it and run it.

Now, if it’s a retail type of business, I see that all the fixtures are in, the shelves are stocked with high-margin products, and the point of sale (POS) system is plugged in and ready to go. Heck, there are even a few fully-trained, smiling employees ready to take on the day!

Basically, I see a business that’s 100% ready to go, and one that should be easy to manage-since everything has been set-up.

I also see a business that should be easy to make money in, since it’s totally set-up and systematized.

making lots of easy money in a franchise

Finally, since it’s a “Business in a box,” it means that I’m obviously not the first person to own one, so naturally it’s a proven business…and a proven cash-machine.

Are those the things you see?

If so, immediately erase those images from your memory, because a business like that doesn’t exist-and never did.

Nonetheless, it’s true that when you buy a franchise a lot of things are“set-up” for you. But not everything!

Furthermore, when it comes to making money as a franchise owner, it’s not an automatic slam-dunk just because there are business systems in place etc.

 

A Classic

This next one is a classic franchise phrase.

#4 “When you buy a franchise you’re really buying a job.”

It’s true that if you buy a specific type of franchise, you are pretty much buying yourself a job.

For example, if you buy a franchise that specializes in cleaning grout and tile, and you are the one always doing the work, you have bought yourself a job. But does it really matter?

The reason I ask?

What if you’re making $100,00 a year as a franchisee in a business like that?

Furthermore, what if you can pretty much set your own hours, so you can have the lifestyle you’ve always wanted to have?

Lastly, what if a simple, one-person business suits you just fine, since you are your own boss? Hey, if a one-person franchise business can make money, it’s a good thing, right?

On the other hand, if you buy a franchise you can grow-and hire others to do the work for you-or help do the work, that’s a different story. Is that what you want?

Bonus: if you’re not doing all of the work yourself-if your employees are doing some of it-or most of it, that means you’ve created jobs. That’s a good thing. Right?

franchises with employees

And, if you buy a franchise that will allow you to expand…to add locations, you definitely haven’t bought yourself a job. Because you’ll be developing and managing your locations. Growing your business.

 

The “Money” Catchphrase

#5 “The franchise company makes all the money.”

What does that even mean?

In summary, there’s a lot of marketing spin in franchising.

The other side of the spin?

Facts.

And the way to get those facts?

Research.

Now let’s take a few moments to go over how businesses become franchise businesses.

 

Franchising A Business Is A Big Deal

turn a business into a franchising business

It takes a lot of time and money to franchise a business (the right way).

In the first place, you need to offer a product or a service that’s special. I’d even add memorable to the mix. That’s because today’s would-be franchise owners are presented with a plethora of choices. That means your opportunity needs to stand out.

Moreover, you need to show prospective franchisees something proprietary that’s been proven to work. Then there’s the cost. The upfront investment one needs in order to franchise their business. How much money is needed?

 

How Much Does It Cost To Franchise A Business?

If you have an idea for a franchise business, or you’re thinking of converting your existing business into a franchise business, you’ll need to invest a pretty good chunk of change.

These days, it’s not uncommon for an entrepreneur to spend upwards of $150,000 to get their business to market as a franchise business-including legal fees.

In addition, once a franchise business is up and running, there are ongoing costs. Like:

  • Marketing/branding
  • Training programs
  • Legal and compliance
  • R & D
  • Technology
  • Legal

The bottom line?

It costs a lot of money to build a franchise system…to become a franchisor, and to keep it up and running.

Now, I’m not trying to make you feel sorry for franchisors, as some of them make a lot of money.

But it’s important to know what the folks on the other side of the table need to do to even be at the table.

Without exception, franchisors need to invest a lot of money to attract franchisees, as they’re the heart of the system.

In addition to the upfront money franchisors need to establish their brand, they’re constantly investing money on lead generation. As in finding and awarding new franchises. And these days, most of their franchisee marketing is done digitally.

One more thing, and it’s a tip from Franchise Attorney, Charles Internicola, for people who may be thinking about franchising their business. It goes to system growth.

You need to develop your franchise offering for both individual and Multi-Unit sales.
Having the ability to sell multiple franchise units to a single franchisee is important. What does this mean? Many times, franchisees want to acquire the right to develop and open multiple locations or operate in multiple territories. That is, they don’t want just one location or one territory.

 

Do Franchisors Make A Lot Of Money?

In a word (or two), they can. But not always.

In order to succeed these day, franchisors need to offer an opportunity that has a lot of bang for the buck.

In other words, a franchisee paying $15,000-$20,000 a year in royalties to the franchisor needs to feel that the fees are worth it. Because if a franchisee doesn’t think the money they’re paying to be a franchisee is worth it, nothing good can happen.

franchise growth chart going down

To be more specific, a large number of unhappy franchisees can thwart the growth of the brand. How?

In this case, by telling prospective franchisees (who are calling them as part of their research), that the fees they pay aren’t worth it. And as an added bonus, existing franchisees in franchise systems that aren’t well-liked by franchisees will be more than happy to provide other negative information about the franchisor.

In contrast, if the franchisees do feel that the ongoing fees they’re paying are fair-and well worth it, their making good money, and they’re pretty happy with the system in general-that system will continue to grow. And everyone in the system benefits from that as the brand becomes more recognized.

As to the question of how much money a franchisor can make, it’s important to understand where their profits comes from.

 

Franchise Fees

To start with, believe it or not, Franchise Fees are not a huge source of profit for franchisors, no matter what you may have heard.

Case in point: a small percentage of franchisors are more than willing to part with 40% or more of their Franchise Fee to pay franchise consultants to sell franchises for them.

If you read my post about franchise consultants I linked to in “The Rules In Franchising” section several paragraphs up, you may remember this:

Franchisors typically pay franchise consultants a percentage of the upfront franchise fee. As a rule, that percentage is 40-50%.

So, if the franchise fee is $50,000, and the franchisor is paying a franchise consultant a 40% commission, the consultant* receives a check for $20,000. And he gets it via FedEx about a week after his candidate sends in the check for the Franchise Fee. Not a bad day’s work, eh?”

*That’s why franchise consultants/brokers/coaches (who all do the same thing, except call themselves different names) are willing to offer their services free of charge.

Nevertheless, even if the franchisor isn’t paying a franchise consultant part of the Franchise Fee, the franchisor is using the money for cash flow or is just plowing it back into the business. The real money-the profits…come from…

franchise royalties

 

The Royalties

I want you to imagine being a franchisor with 400 franchise units scattered across the country.

If you (as the franchisor) charged a 5% royalty, and each of your franchisees had a monthly revenue of $40,000, the figure below is the amount of money (from royalties) your bank statement would show every month:

$1.6 million.

Now multiply that by 12 months and all of a sudden you are bringing in a cool $19.2 million of royalty income a year.

Of course you’ll have to extract your expenses-which are high, but you’re most certainly a millionaire.

wealthy franchisor

Now that was only one example. You’re welcome to play around with the numbers. Use your imagination. Maybe put in the number of franchise units Domino’s Pizza has. If you do that, I promise you’ll be looking around your house (or office) for another calculator. Just to make sure you did the math correctly.

Lastly, it’s important to know that not every franchisor is successful and/or a millionaire.

Simply put, there are plenty (hundreds) of franchisors who only have 5-10 franchisees. And some of those have been stuck at those numbers for years.

But if you can come up with a winning business concept-one that can be transformed into a national brand, with hundreds or even thousands of franchise units in operation, the world is your

world is your oyster

 

Franchising And Entrepreneurship

This section is way more important than you think.

That’s because of the word, “Entrepreneur.”

So, let me start out by asking you a simple question:

If you end up becoming the owner of a franchise, does that make you an entrepreneur?

I want you to really think about your answer.

That’s because there are dozens of franchisors that use the word “entrepreneur” as a major part of their marketing/advertising programs. That’s right; the “E” word may be found in their advertisements, both online and offline. Don’t fall for it. Don’t think for one minute you’re going to be a (true) entrepreneur if you become the owner of a franchise.

Why Am I Telling You This?

Because I don’t want you to get roped into something that’s just not true.

That said, it can be argued that all franchisees enagage in a few entrepreneurial activities.

These activities include things like creative ways to solicit customers or perhaps an innovative way to recruit star employees. Anything that involves “thinking outside the box” to help a franchise business grow and prosper can be deemed entrepreneurial.

But remember, a franchise business is a system-based model. It’s designed to be easily duplicated by others. If the people buying the franchise are too entrepreneurial, and don’t follow the system they’ve invested in closely, the franchise is doomed. Why?

Because if all the franchisees are doing their own thing-being entrepreneurs, there won’t be much of a brand left. And not much value either.

 

A Friendly Disagreement

Rieva Lesonsky and Joel Libava

(That’s Rieva Lesonsky and I)

Rieva and I disagree on something.

In brief, here’s what my friend, Rieva Lesonsky, the former editor of Entrepreneur Magazine®, and the woman who wrote (without hesitation), the foreword to my hardcover book on buying a franchise, said about franchisees being entrepreneurs.

There are many times that franchisees could be-or should be-considered entrepreneurs. Think about franchisees who take a gamble and buy into a newer system. While they might not be risking as much as the person who started the system, there’s still a lot at stake there. In cases like this the franchisor’s name is not that well established, undercutting a big advantage of buying a franchise. And the kinks in the system may not be worked out yet either.”

Obviously Rieva is a smart woman. She’s a true expert on entrepreneurship and small business. Heck-she’s been doing this longer than I have. It’s just that in this particular case we disagree.

As a matter of fact, Rieva and I have had a friendly disagreement about whether or not a franchisee is an entrepreneur or not, for years. She thinks franchisees are entrepreneurs. I don’t. In my mind, the franchisors are the entrepreneurs.

But one thing is certain; if you think that you’ll be able to use megatons of creativity as a franchisee, a person who owns and operates a business that typically comes with a 300-page operating manual, you’re going to find yourself in a heap of trouble. And you’ll be extremely frustrated!

frustrated franchisee

My point (which you may want to read over twice) is this:

The person who came up with the concept that is being offered as a franchise is the true entrepreneur!

It’s the person…the entrepreneur, who spent a lot of time and money developing a specific business system. One that can be duplicated by others who are willing to buy into the system-and follow it.

Would you like to give your eyes a rest?

If so, check this out. I know you’ll find it useful.

(That’s John Jantsch. We met in Cleveland about 12 years ago. He’s a good guy and a brilliant marketer.)

A while back, John Jantsch, of Duct Tape Marketing, sat me down for an interview for his podcast. A podcast that’s ranked as one of the top 50 podcasts of any genre based on unique visitors per month.

If you’re on the fence about becoming the owner of a franchise business, and/or you just want to “hear” more about franchising, click the link below.

Click Here To Hear About Franchising

 

Should You Buy A Franchise?

Now that you’ve begun learning about franchising and franchise ownership, you need to decide if owning a franchise is right for you.

In addition, you need to determine if this is the right time to pursue franchise business ownership.

So, what is the right time?

Is it when you have $750,000 in the bank?

Or when your last child has graduated college?

How about if you’ve been downsized and have received a generous compensation package?

Maybe a better question to ask yourself is this:

Is there a right time to buy a franchise?

 

Buying A Franchise Is A Big Deal

Buying a franchise is probably one of the biggest financial decisions you’ll ever make. It can be scary. For anyone!

For example, I’ve personally worked with multi-millionaires, who, because of plain, old-fashioned fear, couldn’t summon the courage to sign their franchise agreements. And it does take courage.

What’s the real story?

You need to understand that if you decide to pursue franchise ownership, you’re going to feel a lot of fear. It’s normal. It really is. Some days you’ll feel like nothing can stop you-and you’ll be wildly successful as the owner of a franchise business. Other days you may feel so much fear…so much trepidation, you may start thinking about trashing this idea of owning a business and decide to go out and get a new job.

Either way, if you didn’t feel some level of fear, I’d be worried for you.

In addition, because of how information comes your way when you investigate franchise opportunities, you’ll feel confused. Maybe even overwhelmed. So many choices! So many salespeople! But it doesn’t need to be that way. Why?

Let me share a secret with you.

The information you need on franchising-good, truthful information, is out there. You just need to know how and where to find it.

I’m not talking about franchise information that’s clearly designed for a specific outcome. For example, information produced for the purpose of making a sale.

Instead, I’m referring to the kind of information you need to make an intelligent, fact-based, yes or no decision on franchise ownership and specific franchises to buy.

If that’s the type of information you’d like to have, I have good news.

I have it. And 95% of it is free.

 

Where To Get Straightforward Franchise Information

If you feel that you’d benefit from more information from me, here’s where to find it:

To conclude, I hope you found my “Complete Introduction to Franchising And Franchise Ownership” helpful.

You’re welcome to drop me a note or ask me a question, anytime.

Setup Your Franchise Business