You have a successful business and are wondering if franchising makes sense. While there are many well-known and profitable companies, few become franchises. For every McDonald’s, Hertz, Choice Hotel, there are probably millions of businesses that could not and should not franchise. What makes a successful “franchise-able” business concept? The following factors are essential in deciding whether you should franchise your business:
- Differentiated. Do you have a unique product, service, systems, business model, etc.? Have you developed an identifiable and memorable brand? You need to be able to identify what sets your business apart from competitors.
- Credibility. Is your business successful? You need a proven track record, a solid reputation, and good management and operations to be credible. Remember that franchisees will be licensing your trademarks, logos, services marks and systems of operation. If those are not seen as valuable, no one will pay for them.
- Replicability. Can others follow your model? Your business must be able to be duplicated in other markets. If your product/service only works in your locale or is dependent on your personal (as opposed to company) brand or efforts, it may not be appropriate for franchising.
- Teachable. Are your systems and procedures easily learned? You must be able to train people to run their own franchises in a reasonable time frame. If it is a highly technical business or requires special skills or significant training, it may not be a good concept for franchising.
- Marketable. What is the market for the business? Is the industry saturated? Who are your competitors? What are the prospects for growth? Research is essential to determine if your business model is viable outside your area.
- Profitability. What is the return on the investment? Franchisees need an appropriate profit margin after paying royalties and other fees to make it worthwhile. If you have low-profit margins, it may not make for a good franchise.
These are a few of the initial questions to consider when deciding whether your business can be franchised. Just as importantly, you must determine whether you are ready to be a franchisor, which will be covered in our next blog post.
If you have questions about franchising your business, consult Lusthaus Law.