Bold title? Yes, but is it backed up by facts? Let’s take a look at franchising by the numbers today as compared to a regular small business model and discuss why this business model has been so successful over time as compared to a normal business start-up and launch. We’ll discuss the benefits and risk shelters that franchising holds for the small business owner who
becomes a franchisee instead of going it alone along with the benefits and risk shelters the franchisor receives. Franchising, when done properly, should be a win/win for both the franchisor and the franchisee and a completely symbiotic relationship much like a clown fish enjoys with a sea anemone.
The numbers…
Greater than 96% of all new franchisees are still in business after 5 years, compared to roughly 50% of small businesses overall, which includes franchises. Greater than 70% of small businesses fail within 10 years. If franchises were taken out of the small business success number, who knows what it would really be? Greater than 20% of these small businesses fail
within year one. The reason for this is both simple and complex. Franchises offer a proven system of operation that is shown to be profitable while the small business start-up that isn’t a franchisee has to learn on the fly from their own mistakes and hope to be able to afford to continue to do so for as long as it takes to become and stay profitable.
Fewer than 5% of ALL franchise locations close each year for the same reasons mentioned above.
Franchise locations account for more than 50% of the total retail sales in the country although they only make up about 9% of all businesses. This can be attributed to the reasons mentioned above as well as one very important, yet previously unmentioned factor:
BRAND RECOGNITION. Think about this. When you’re traveling on a road trip from Virginia to Florida, for example, and you’re in need of a quick bite to eat, are you more likely to pull off of the interstate and stop at the Wendy’s or are you going to pull across the street to go to Bill & Jane’s BBQ at the same highway exit? That is the hidden power of brand recognition. Although that Wendy’s is owned by a completely different franchisee than the one at your
local location, you have immediate comfort with the brand and typically don’t even think “this is a small business with an owner I don’t know.” You expect to receive the same great spicy chicken sandwich at this location as you do at home because of brand recognition.
20% of all franchisees are multi location owners, as with a franchise system you should be able to scale faster and far more sustainably. This is one of the major benefits you get for paying royalties: the ability to grow larger and faster with less mistakes is prized amongst both new entrepreneurs and seasoned business owners alike.
So, it’s obvious by looking at those numbers that franchisees benefit greatly by selecting a good franchisor, but what does the franchisor get out of it? Franchisors, in exchange for teaching their franchisees great systems and processes, obviously collect royalties from their franchisees, but this helps them do numerous things besides enrich themselves. Used properly, these royalties fuel innovation and growth for both the franchisee and franchisor.
They fund technological research and marketing experimentation to see what works and what doesn’t so that the franchisees don’t have to make any of their own mistakes. They fund corporate growth, increasing brand recognition for all franchisees as well. Advertising budgets go up, increasing franchise and brand awareness even further. You see, for the exchange of royalties, everyone involved in the franchise should grow quicker and more sustainably.
Based upon the numbers above, it is nearly impossible to fail if you pick the right franchise to become a part of. If you have any questions about how to get started in selecting a great franchise for you, or simply have feedback on this article or questions about it, please click Learn More below and we’ll contact you regarding your inquiry as soon as we receive it!
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