Facts About Franchising

Franchising offers growing businesses solutions to the problems of money, people, and time.

Franchising traces its roots back to ancient China. It is a system for expanding a business and distributing goods and services. It is a marketing method which has been called by many business experts as the greatest marketing strategy ever created. It is a program to create amazing opportunities for business ownership and personal wealth.

In the United States, approximately 8% of the retail businesses are franchised. The amazing fact is that the 8% do over 40% of the retail sales in the United States. Franchising has the ability to capture more of the market share. The increased market share is due to three main things comprising a franchise:

  1. A brand name. Even a newer brand name usually has an advantage over an unaffiliated business.  
     
  2. A successful business system. The proven system allows franchisees to follow a successful plan with a high success rate. The franchisee can also enjoy cost savings as a result of the buying power of the franchise.  
     
  3. A support system. The franchise will have the expertise of successful franchisees and franchisor to help them succeed. They are not in business alone.

The Gallup Organization conducted a poll on franchisee's ownership experience and attitudes. Here are some results:

  • More than 90% said that their expectations were met or mostly met
     
  • More than 90% said they considered their franchise to be successful
     
  • More than 65% said that they would have not been as successful if they had tried to open the same business on their own.

Franchises are made up of two types of franchises: product distribution franchises and business format franchises.

  • Product distribution franchises are companies like Ford Motor Company, PepsiCo or Goodyear Tires. The franchisee usually manufactures and/or sells the product through retail outlets. Often special preparations at the retail level are needed before the product is sold. 

    Franchisees use the trademarks but usually lack the entire operating system for running the business. Product distribution franchises represent the largest percentage of total retail sales coming from all franchises, but most franchises are business format franchises.  
     
  • Business format franchises are like Subway, Fantastic Sams or GNC. The franchisee uses the trademarks but also uses the franchisor's specific operating system. This system helps the franchisee to produce consistent quality. The system teaches how to do almost everything in the business.

Sometimes franchising is referred to as an industry. It is not an industry but a complete marketing system. More than 80 industries use franchising to get their products, services and brand names to the consumer. 
 
Restaurants account for only about one third of the available opportunities. More than half of the franchises available have initial investment levels of below $100,000.


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