Franchising as a method of expansion

World pictureThe franchising industry in the UK now has turnover in excess of £12.4 billion. Over 90% of franchisees are profitable (even during recession) and the sector has grown in the UK by more than 40% in the last 10 years. The turnover / revenue in UK franchising has increased by more than 80% in that 10 years. There are almost 900 active franchise networks in the UK alone, and the sector is growing rapidly.

Franchising as a label is sometimes given to different business formats. What we at Franchise Generator mean when we refer to franchising is "business format franchising". In essence, one successful business (the franchisor) sets up a training scheme, package and manual on how to operate the business and gets everything that someone else (the franchisee) needs to replicate the original business for himself.

The franchisee is self-employed, but trades using the franchisor's name, and has to follow rules to ensure brand consistency. In addition to the licence to trade using the brand name, the franchisee has access to the network of other franchisees and the franchisor. The franchisee also gains by having support and training from the franchisor, and often has access to discounted supplies through bulk buying power.

There is a much higher success rate for entrepreneurs who buy a franchise to set up their business than for entrepreneurs setting up a new business without that support. In return for his initial training and package and the ongoing support, the franchisee usually pays an upfront fee to the franchisor, and then a percentage of his ongoing revenue (or sometimes fixed fees or product mark-up).

Advantages and Disadvantages of Franchising

For the franchisor, the advantages of franchising include that there are far lower investment costs compared to expanding organically, and the network can usually expand far more quickly. The network should be highly motivated, because the franchisees are self-employed and have invested their own funds, and the brand can be protected through carefully drafted legal agreements that are enforced.

If you franchise successfully, your revenue and profits should increase both from increased sales and ability to target national customers and also from the ongoing franchise fees received, which are usually a percentage of your franchisee's revenues.

There are disadvantages to franchising, and not all businesses are suitable to franchise (please see our Suitability section). Some disadvantages include the need to control a network of entrepreneurs (not always simple) and possibly lower total rewards than organic growth (although this could be counterbalanced by more rapid growth and lower risk). Franchise Generator can offer advice to you and in particular please see our "Next Steps" page for the no-cost,no-obligation initial meeting offered to potential franchisors.