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Franchising as an Expansion Strategy

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>> Using Franchising as an Expansion Strategy for Business: Why Many Companies are Turning to Franchising

Using franchising to expand a business is a proven method that creates a wider market base, increases brand value and brings in more revenue. Business growth through franchising is a popular model in the restaurant and retail markets with companies like McDonald, Burger King, Starbucks and Wendy’s easily catching the eye.

If the market for your business is booming, you will need to expand along with it. Franchising offers you a means to do so. Using franchising as an expansion strategy for business comprises of 3 steps.

  • Endorsing someone besides your employees/company to sell goods and services in a specific area.
  • Issuing guidelines and making key decisions like brand management, quality control and revoking the power of erring franchisees.
  • Franchisees using the brand name and products/services for business purposes after paying a mutual fee. Franchisees driving the business under a general framework. But receiving assistance from the parent company in terms of recruitment, training, strategy and purchases.

Franchising is a prudent way to expand the frontiers of your business. However, a franchisee should be aware that it requires an ample amount of resources. You need financial resources to pay royalties, buy products and cushion the salaries of employees. The infrastructure of the franchisee should be duly considered. Transportation, communication conveniences, location and a trained labor force matters too.

A franchising company can settle either for a slow-growth or fast growth pattern. The slow growth pattern is suited for those looking for gradual increase. Under this model, the franchised company assists all franchisees with location, marketing, training and financing to a certain extent. Everything is built from scratch and profiting from all this takes time. The advantage of all this is that the brand is stronger and employees are well-rounded. A franchisee will also experience minimal independence in every day operations. However, this might mean doling out higher fees for assistance and getting slower returns on investment.

Alternatively, the fast-growth pattern is the way to go if you are looking for a quick expansion or rapid growth. The franchise fees are lower because the main thrust is to capture promising marketing potential fast. Franchisees are autonomous in this regard and left to do things on their own. It is a good alternative for people with plenty of business experience and existing infrastructure. Franchisees that are inexperienced may find it difficult to handle these services long term. Growth using the franchising model is a good way to expand business.  This method bypasses the need to use vast amounts of capital to maintain a large overhead and expand operations. The amount generated by franchisees is used to return borrowed capital.

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