Is the business franchiseable?
The franchise method is used successfully by all sorts of businesses in all sorts of markets, but not all businesses are franchiseable. If your business has one or more of the following characteristics, franchising may not be suitable:
- A product or service which is only likely to have a market for a short time
- Gross margins that are too low to offer a return on investment to both you as the franchisor and your franchisees (e.g. newspaper delivery)
- Skill levels for each operating unit that require extensive training periods
- Predominantly repeat business customers whose loyalty relates to the individual providing the service and which would be difficult to transfer to a brand (e.g. marriage counselling)
- A geographically defined market that doesn't have the potential to be repeated in many places (e.g. Tower of London)
- A business with audit and control requirements which are too critical to involve franchisees operating as separate legal entities (e.g. a bank)
- A business which is failing.
If you think your business might be franchisable then you will need to offer franchisees a business format which includes your brand, business system, and support services under the contractual terms of a franchise agreement which will, amongst many other things, set out the financial arrangement. Considerable development work is required before you will be in a position to draw up offer documents and begin recruiting franchisees.
Each of these topics are covered on the following sections.
Go to step two: Franchising my brand