Franchising. It tends to get a bit of a bad wrap, and on some occasions that it’s warranted. Australia has more franchise systems per capita of any country in the world and not all franchise systems are equal.
According to the last national franchise survey conducted by the Franchise Council of Australia there are approximately 1,200 different franchise systems making up over 80,000 business units that turn over in excess of $144 billion, I wonder how many of the 1,200 you could name?
I hear many comments from people outside of franchising such us “it’s easier to do it yourself” or “the only person that makes money out of franchising is the franchisor”. This normally comes from people that have not really investigated franchising to the full degree or the system they have investigated wasn’t franchisee focused (a publicly listed franchise has shareholders to answer too!).
Don’t get me wrong, Franchising is not for everyone, some feel restricted in a franchise system as they can’t make changes to the system if they choose to. For more entrepreneurial people they will find this highly restrictive leading to an annoyance. With that said, a good franchise system will listen to their franchisees as these are the people that are on the “front line” receiving feedback from their customers on their needs.
One of the other more common comments is “you need to pay fees in a franchise and it’s a cost I don’t want”. I want to discuss this in a little more detail because I feel that it is a huge misconception.
Why would I want to pay fees?
Franchising is a business and without income the franchise system cannot work, however, the very point of the fees is to cover the costs that would normally be borne by an independent business at a much lower cost. What is important is what you receive in return for your fees.
It is often said that 80+% of small business fail within the first 18 months. There could be numerous reasons for this, however, the major contributing factor is small business owners often underestimate the cost of setting up a new business and rarely invest in the areas that they should, such things as brand awareness, systems, marketing, ongoing training etc which allows them to compete in the marketplace. So by cutting these important corners due to lack of funds, business continue in a downward spiral trying to increase sales without having the tools they need to do this in a planned and calculated fashion.What also needs to considered is time. When a business is launched, the owner has normally invested a huge amount of money and is intent on regaining positive cashflow as soon as possible so they set about attempting to perform tasks that provides income. Unfortunately this cannot be done until all of the systems are in place and to have these systems the owner must invest time and effort that does not provide income. It becomes a catch 22
Enter the franchise system. A good franchise system should be a turn key solution proving the franchisee with all of the proven tools and systems to allow the franchisee to perform the day to day running of the business. In short it provides small business tools, systems and brand of the big business.
None of this comes for free. But for a low fixed cost (in the case of Jim’s Real Estate) making it much easier to budget for your cost whilst ensuring that the major investment is being looked after by the Franchisor.
Real Estate specifically has a huge amount of fixed cost involved just to keep be able to trade. Consider these:
- Platform subscriptions (realestate.com.au, domain.com.au, Pricefinder, CRM etc)
- Brand Marketing (imagine the cost to make your brand familiar with your consumer?)
- Digital marketing for lead generation
- Website creation and upkeep
- Ongoing training
- Office lease
- Administration staff
These don’t even cover the other benefits of being engaged in a Franchise network as i will discuss in a seperate blog.
The question then becomes “What is fair and reasonable in regards to fees”? My answer to that is “what value are you getting”? I believe that fees should be fixed. Many systems use a percentage of profit model to determine monthly fees. My issue with that is that a franchisee who is more successful and potentially working harder can pay $10,000’s to the Franchisor each month for the privilege. Our belief is that “True happiness is found in helping others” I see the role of a Franchisor to select and support their franchisees not used as a profit making relationship. Support your franchisees, make it your business to help them succeed and the Franchisor grows because the existing Franchisees are happy and become your cheer squad.
By Jamie Byard
Jim’s Real Estate