Module 8 – What does the franchisor get out of me buying their franchise?

Module 8 – What does the franchisor get out of me buying their franchise?

The previous model explained some elements of the Management Service Fee (MSF) and how franchisors generate their income from this. In addition to the MSF there are many reasons for a business owner to choose franchising as a way to grow their business. Below are several items a franchisor gets out of you buying their franchise[1]:

Lower cost to market growth in comparison to growing a centrally owned operation – There is still a significant cost to a business owner to prove their business format and set up their business as a franchise system yet this in comparison to the costs to growing centrally can be significantly less. Franchisors will benefit from being able to grow their brand at a better pace than through traditional means.
Less bureaucracy – though you will be bound by a franchise agreement you will find that there are less layers of bureaucracy and management when compared to a centrally owned business. You may likely be able to speak with the franchise directors occasionally and have a direct line to senior team players within the franchise.
Higher commitment – whether you fund the whole purchase yourself or you borrow money to do so. Franchisors tend to find that franchisees are more committed to developing their business operations than the normal staff route as you will be risking your own money and or that of investors.

In summary, franchisors have typically evolved from being successful business owners and have chosen to create a business format franchise opportunity for prospective franchisees as a speedier more costs efficient route to business growth.

Look forward to Module 9 – What is the legal relationship defined by the franchise agreement or franchise contract?