- Distribution of goods and services
- Capital acquisition
Franchising from a regulatory standpoint (The Federal Trade Commission) is defined as a business relationship in which an individual owner:
- Uses a common name (such as Burger King®)
- Receives training/guidance from the parent company
- Pays a fee to the parent company in the form of royalties and advertising fund contributions
Each year, more than $900 billion in goods and services are sold through franchises in the United States. There are over 750,000 individual franchise outlets nationally. Each working day, a new franchise opens every five minutes. It may come as a surprise that 42% of all retail goods and services are sold through franchises!
One U. S. Department of Commerce estimate puts the success rate of franchises at 95% as compared to a 25-35% success rate for independent businesses.
The benefits to franchising are many. For starters, you gain from the experience, know-how, name brand recognition, and operating plan that come with the franchise. Most businesses take a great deal of expertise that takes decades and dollars to fully develop. With a franchise, you get the ready-made framework within which to build your own successful business.
There are other advantages to franchising. Although you pay a variety of fees to the parent company, you are able to leverage these fees in ways that should put you ahead of the independent business operator. For instance,
- Competitive advantage - the parent company's name-brand recognition and network of support gives you an immediate and distinct competitive edge over an independent, stand-alone business.
- Training - you receive training based on expertise that has been acquired through years of hands-on experience, backed by proven business strategies and the security of an established name and methodology.
- Reduced costs - you can avoid the costly trial and error period that occurs in many start-up businesses. As a franchise owner, you will be able to "hit the ground running", with the methods and marketing to generate traffic from day one.