Small Franchise Problems

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In the world of business, when most people think of franchising they think about the high-dollar heavy hitters in the restaurant and lodging industries. The reason people associate franchising with these large entities is because those are the ones that are highly visible, both in advertising and in sheer volume of locations. However, there are a large number of brands in various sectors of business that offer franchising options on a smaller scale.

Small business franchises make ownership a realistic possibility for thousands of investors who aren't in a position to purchase a large chain business. Besides just low start-up costs, they generally operate at low overhead and are easier from an administration standpoint, as well. Are small franchises smart investments, though, or is it a case of "you get what you pay for"?

Visibility

As we mentioned above, the big names can afford to run multi-million dollar ad campaign that give their franchises high-profile national exposure. For the smaller companies, a spot during the Super Bowl just may not be a feasible marketing strategy. However, in this media driven consumer economy, advertisements drive the market. Its why the big guys do so well and why they keep getting bigger. Does this mean the smaller name franchises can't compete and thrive? Absolutely not.

In fact, many small franchises wouldn't really benefit from the same type of marketing. Many smaller businesses focus on specialty niches within the marketplace. As such, broad reaching marketing campaigns wouldn't even be especially effective. Why spend money advertising to everyone when you are only trying to reach a handful?

Smaller franchises often tend to focus on narrower promotional styles, like demos and ads in industry specific journals, that are much less expensive and much more affective for the small franchise owner. The franchise owner benefits from advertising pertinent to his or her business and generally has to chip in much less in advertising fund fees than the big guys.

Fees

What about other fees though? This is where the little guy does sometime lose out to the big guy. Almost all franchisors take a royalty fee for the use of their name. This fee is taken as a percentage of the franchisees' profits. While this percentage may vary somewhat from franchisor to franchisor (which is something that should be considered when selecting a franchise), the average in the U.S. is around 7%.
Now, let's look at some numbers. If you take a business that is making $500,000 annually and a smaller business that is bringing in $50,000 and take 7% from each, that's $35,000 from the first and $3,500 from the second. While the first is paying more in royalty fees, that remaining $465,000 is going to cushion the blow a lot more than the smaller owner's remaining $46,500.

Those figures, of course have to be balanced against the initial franchising fee and start-up cost, and the ongoing cost of doing business. The small guy may be making significantly less, but he paid a lot less for his business too, has a lower overhead and is turning a profit years before the big guy even has his business paid off.

So as you can see, the answer to our initial question is, "both". With smaller franchises, you get less franchise for less money, but that doesn't necessarily make them a bad investment. The important thing is to go in with both eyes open.

Article Source: http://depositarticles.com/

Have additional franchising questions? Get more franchise information with a real business example atwww.firstprizefranchise.com/filtafry/"> Filta Fry . The Filta Group is an international franchising company located in Orlando, FL. For immediate answers to your franchising questions, call 407-996-5550. Additionally, you can get more information on Filta's emerging franchise by going to Please Rate this Article

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