Perhaps you are thinking about growing your business and you’ve thought, “Do I make more money franchising or opening other locations?”. This is a good question and depends on many variables including how involved you want to be and how many more locations you actually plan to open. Let’s explore this a bit further.
Open Few More Locations Yourself
If you choose to grow by opening more locations (which we refer to as “organic growth”) then you absolutely have total control over each of these new locations, the revenues and profits they make. And yes, you will make more money from each new location that you operate simply because you can tap into the profits. If you’re running a lean and efficient operation now and you duplicate your business (which currently generates you a significant profit) then compared to franchising you will be making more money.
When franchising your business you typically receive a percentage of gross sales from each franchise location which could be far less than the profit you make from your company-owned locations. However, your cash investment is more and ongoing as you open more locations. The only way to reduce your cash investment may be to bring on partners… but is that something you really want to do? Are you willing to give up a say in your business, how you operate and manage your business and the future direction of your business to raise money for organic growth?
While you can take advantage of the benefits that you have from controlling your profits, keep in mind you are 100% fully responsible for each new location. This includes hiring and managing employees, insurance costs, daily operations… and the list continues (read “Open More Locations or Franchise? What to Do“). If your intent is to stop growing after adding just a couple of locations, then YES, going this route of opening more locations yourself makes most sense because the end result is that you will generate more money.
Open LOTS of Locations Through Franchising
However if your intent is to grow your business beyond just a handful of locations you own and you want to be all over the United States (and beyond), then franchising is a more attractive option (visit our list of frequently asked questions about franchising to learn more about franchising). Unless you are significantly funded and intend to create an infrastructure of district and regional managers to run all these locations yourself, organic growth may be very limited. Franchising provides you with a small percentage of gross revenues for each location (before profit) therefore the whole idea of franchising is strictly based on number of franchise locations. Franchising is about QUANTITY.
If you believe that your business, your systems and the best practices that you’ve created needs to be in every city of every state then franchising is a viable solution (read this to learn the steps to franchise). Your cash investment in creating a franchise program is a one-time investment compared to the ongoing cash investment of opening more locations (as described above). When franchising, the monies you invest instead will be in advertising, marketing and recruiting franchisees along with creating different initiatives to make your system stronger and more valuable in the marketplace.
What’s Best for Your Situation
If you have the bandwidth (resources and talent), want to open only a couple more locations, you are good with taking on more responsibility (including managing more people) and, if for example, you are generating a 20% profit from each location you operate already; then franchising should not be on your radar. However, if you want TONS of locations all over the place as described above and do not want the burden of additional liabilities or employees to manage, then franchising may be your best option. Keep in mind, then the monies that you make from franchising not only comes from your initial franchise fee but also ongoing royalties, the sale of products or equipment you sell to franchisees on an ongoing basis in addition to any kickbacks you might receive from preferred vendors (see “How to Make Money Franchising Your Business“).
So while you may not be pulling a 20% profit (in this example) from a franchise location, at minimum you will be receiving a franchise fee and ongoing royalties that is typically a percentage of gross revenues. The big picture is for example you get X dollars for a franchise fee plus a percentage of gross revenues multiplied by 50, 100, 150, 200+ locations each month, plus all the other things mentioned above. When comparing this to pulling profits off just a couple of locations you own, franchising may be a NO brainer (take a look at “Franchising is About a LITTLE of a LOT, Rather than a LOT of a LITTLE!“) .
When franchising, how aggressive you are in bringing on franchise operators and how well you execute your franchise program will determine your franchising success, which equates to creating your franchise wealth. If after reading this piece you wish to explore the idea of franchising your business call us directly at 1-877-615-5177. While franchising is attractive, beneficial, provides recognition and branding; it’s not for everybody.
- Should You Franchise Your Business
- Why Franchise Out a Business
- Franchising is the Least Expensive Option for Growth
- Benefits of Franchising Your Business
- What’s Your End Game: Franchising May Play a Role
- Franchising is a Strategy for Growth
