Want to generate $2.5 million in annual sales? Easy. Just open a McDonald’s restaurant. Or, if you’re already running a successful business, let others copy it – and pay you; the latter adding up for much bigger bucks.
For example, restaurants such as McDonald’s, KFC, Taco Bell, and Pizza Hut under Yum! Brands, IHOP under DineEquity, and Buffalo Wild Wing have opted to use the franchise model, expanding fast and globally.
In near future, we’ll see a franchising bloom, because cloud computing tools are revolutionizing the business.
Why don’t McDonald’s Corporation just open restaurants if a single hamburger joint rolls in a couple of millions a year? Burger King and Dunkin’ Donuts are almost all franchised restaurants.
Why do they franchise the business? It’s all about synergy. The franchisee gets a functional business model. The franchisor gets its fees and global reach.
The franchisee signs a contract to sell the franchisor’s (McDonald’s, for example) branded products.
The franchise is responsible for developing the restaurant, staffing, overseeing daily operations, and managing costs for running the restaurant. The franchisor (McDonald’s) may own the location of the restaurant and lease it to a franchise.
Usually, the franchisee pays an initial fee plus royalties from the sales. If the franchisee leases the place from the franchisor, then the franchisee pays rent as well. Thanks to eliminated operational costs, the margins are higher for the franchisor.
So, you want to start selling Big Macs? First, a franchise is required to have at least $750,000; 40% of it must be in cash and non-borrowed assets.
The franchise has to pay McDonald’s a $45,000 starting fee, and a monthly service fee equal to 4% of gross sales. Plus McDonald’s get around 8-12% of franchisee’s monthly sales as a rent, too.
For KFC, Wendy’s, and Taco Bell the franchise startup costs are similar but with many other chains, the financial burden is much lower.
Subway joint costs just around $110,000 to $260,000 to start. Minimum liquid assets required by Subway are $30,000 to $90,000.
For the franchisor, using the franchise model lets the company grow much faster because the franchisee provides the capital for making the franchise outlet ready for operation. The franchisor faces a lower risk if the store is not performing well.
The franchisor has more time to focus on product and operation research. There’s less everyday execution to handle. And let’s not forget the motivation.
A franchise operation is owned by the franchise. It is much better to have a financially responsible person running a chained restaurant than to hire a local boss, who may or may not be keen enough in running it.
The downside of the franchising model is that your company has less control over local management, but there are modern systems that help to overcome the problem.
Holding a franchise used to be complicated. A chain of fast-food restaurants, shops, beauty parlors, gymnastics and fitness centers or any other profitable franchise business must offer the client a consistent quality, branding and price policy.
Besides that, regional and seasonal specials, weekend sales etc. are needed. The franchisor has to monitor the cash flow and communicate a lot.
Luckily, franchise management has just been made easy thanks to Internet and cloud computing. Erply has implemented all the tools needed for franchise management.
So, if you want to expand your business, it’s a good idea to franchise it to others. With Erply, you get a franchise master account. Store owners are then provided their own ERPLY accounts, which contain built-in synchronization tools with the master account.
The franchisees have thus functional store software with promotions, gift cards and loyalty programs and all. Want to run a marketing campaign across the franchise chain?
Take a few minutes to define campaign rules, and voila, it’s communicated to all the franchise owners. You can make some campaign aspects optional, granting your franchisees freedom and flexibility. You as a franchisor have all the data running in automatically, so you are in control without being intrusive.
Many blooming retail chains like Rapid Refill or Ben’s Soft Pretzels are using Erply franchise software.
If you are already holding a franchise or planning to expand your business by franchising, try our Franchise Management Software for free or request a demo.
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