Joining a franchise surely has lower risks but profit is the reason why most buy into a franchise network. Curiosity on how long you would have to wait before seeing profits or return on investment (RIO) in a franchise is an understandable and sane query. Franchise Chamber gives you the whole breakdown on what you need to understand before profits roll in, and possible business moves to shorten the time between initial investment and profits.
The franchisor can offer you a forecasted RIO and steps to follow towards profitability, but it is never guaranteed. As we think the best way to help you is offer factors that influence profits of the business.
When it comes to the location of franchise your choices are either owned property or rental, although certain franchises are best suited in rental property among businesses. Rental properties have a legal procedure that needs to be followed and being a tenant is at the owner’s discretion. Going ahead with rental means, a lease agreement needs to be signed, which instructs on the working hours of the stores on the property. Which links to impacting the number of sales and service in a day. Shop fitting with the franchise branding can only be done after the contracts have been signed. The monthly rent and levies, which increase annually must be accounted seeing their mandatory nature for the franchise, as long as they operate within the rental property.
Whereby if you own the property, you can begin shop fitting with the franchise branding as soon as you own the property and are ready. You draw up your operating hours and by the same token, you can decide which costs of keeping the property functional are high priority e.g. as insurance, cleanliness, backup power and store security, instead of levies which cover more tasks increasing the costs.
A Franchise's industry life cycle
Each industry goes through a life cycle mainly known as trends, as the franchisee you need to understand these trends. Reason being a franchise is only a tried and tested business in a changing industry, created by the franchisor and to reach profit you need to understand the industry. Changes happen to an industry because of target market behavioral changes. It could be because of a growing support for a more environmentally safer alternative, or technological advancement in the industry enhancing a products lifecycle.
Ongoing research on trends which influence sales of products and services is a key to spot the best and worst tactics to use when taking advantage of the trends. Industry trends can significantly impact your business’s profits if you don’t adapt to the trends as they become a mainstream adoption in your industry.
How customers pay the Franchise
Membership or non-membership is a big deciding factor for a customer, however as a franchisee you will be restricted to the subscription designed by the franchisor. Although a membership business model ensures a monthly support. It’s common that customers will take longer to decide on a purchase if it’s a membership purchase. When faced with monthly membership, customers are more likely to research competitors to see which business has more value for them. Potentially sending them to a competitor if your selected franchise does not have a good positioning in the market.
If the franchise network works on a non-membership plan, the question then becomes how you can increase leads and sales in the absence of a contract binding the customer to the business. customers can switch businesses overnight if they are not happy with their purchase. Quality customer service is always imperative regardless of franchise, membership or non-membership, your franchise value needs to match their monetary value.
Initial fee to become a Franchisee
The lump sum paid to the franchisor to legally open a franchise is considered as the initial fee. The larger the amount, the longer it will take to reach profit. It is then advisable to research the performances of the products and services sold by the franchise. Contacting existing franchisees is advisable as their firsthand experience is a golden nugget of information on the sales and their expectations before reaching profit.
Source of funding to buy Franchise
The source of your funding to buy a franchise is a constant factor if you are lending. The payment plan structured into your costs will undoubtedly take a recognizable amount from the franchise business account reaching profit. Considering the interest on the money borrowed and the duration of the plan until it is paid off. Looking for partners or options which offer franchise business lending at competitive rates is a smart move. If possible, attempt to raise a reasonable portion of the funds so you are only lending a small amount. Making your payment plan shorter and the required repaid amount less than if you had to lend the whole initial fee.
Salaries of the business
The franchise team is a crucial component in keeping the franchise afloat and heading towards profit but the requirement of having to pay salaries can be a considerable amount delaying the franchise reaching profit. As the franchisee you can decide to take a salary or put it back into the franchise, but the employees of the business need to get paid. It is then suggested you only hire the people you need for the operations of the franchise to function smoothly and keeping growing towards profits.
Those are the notable factors to remember when you are thinking of profiting on a franchise. Do your due diligence as we do by working steadily to help build profitable franchises. If you are interested in how we help franchisors and franchisees with the above oversight and developing franchise systems which can return profit close to 2 years of operating, visit our website.