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Researching a Franchise

3 Of The Biggest Misconceptions Of Entering Into A Franchise Agreement

Purchasing a franchise can be one of the best paths to owning a business – but don’t get lazy. Franchising isn’t any easier (or harder) than other types of business ventures.

Mike Wood

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Entering into a franchise agreement does not mean you are purchasing the ‘yellow brick road’ to profitability. Being a part of a franchise also does not relieve you of your duties as an entrepreneur. After all, a franchise is still a business, and all businesses require work to be successful.

Some people think that going the franchise route will make their job easy. I mean, the franchise does everything for you, right? Wrong! There are many mistaken beliefs people have when considering being a franchisee.

Related: Franchise Or Start-Up?

Here are three of the biggest franchise misconceptions I have come across in my career.

1. No need for additional marketing and advertising

One of the benefits of being a franchisee is the advertising. Most established franchises do advertising campaigns to help attract customers to your business. All you do is pay your royalties each month, and a percentage of those — as spelled out in your franchise agreement — go to running print, television and radio ads.

While this seems like a great benefit to you, it actually does more for the franchise branding than it does for you as a franchisee.

You are unlikely to have a say in any of the advertising campaigns. This means that anything you are doing on the local level will not be highlighted, unless you put forth your own advertising campaign.

You also need to take into consideration local targeting, such as social media marketing and website marketing. The franchisor probably has its own website, but what about you? Their Facebook page is going to be full of information about the company, but have little (if anything) about your store.

When considering a franchise, always budget for additional advertising and marketing outside of what is listed in the franchise agreement. This is extremely important when you are in an area saturated with similar franchises, as you want to make your location the one people want to visit.

Related: Should You Purchase An Existing Franchise?

success-guaranteed

2. Success is guaranteed

A franchise is an established brand, and as such, people think they will automatically be successful as a franchisee. This is a huge misconception and can cause you to have unrealistic expectations. Franchise locations close all the time, the majority of which do so because of non-profitability.

A franchise may also not be as established as you think. If that is the case, your expectations (and what is stated in the franchise agreement) will not be met. This is why it is important to research a franchise thoroughly before entering into an agreement.

The worst place to do your research is on the company’s own website. The best place to look is with current and previous owners of the same franchise.

Just because you buy an established brand does not mean you are ‘buying profitability’. It takes hard work on the part of the franchisee, as well as the franchisor living up to their end of the agreement, in order to make it successful. Ultimately, success lies with the franchisee.

3. Leaving a franchise is easy

Closing up a business is more difficult than you think. And when it comes to franchising, there is a little bit extra that you need to consider. If you do decide to close up shop, simply walking away is not an option. Under most franchise agreements, you are still liable to pay royalties to the franchisor.

Related: How Risky Is That Franchise?

Don’t think because you aren’t making money that you won’t have to pay your percentage of revenue. Many franchise agreements require a minimum royalty payment regardless of revenue. So even if you close up shop, you are still obligated to pay the franchisor for the length of the agreement.

While going the franchise route may seem like a good route, you must consider that it is still a business. There are benefits and drawbacks to owning a franchise just like there are with starting your own business from scratch. You know the saying: If it was so easy, everyone would be doing it. And obviously not everyone is doing it.

Mike Wood is an online marketer, author and Wikipedia expert. He is the founder of legalmorning.com, an online marketing agency.

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Researching a Franchise

Maximise Your Social Media Reach This Holiday Season

Quick and cost-effective, social media is your best tool to reach target markets when it matters most – during the holidays.

Diana Albertyn

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It’s not just the end of the year that can be lucrative for businesses. School holidays and other major breaks during the year present consumers with more time to spend shopping. Why not ensure money is spent at your franchise by capitalising on the minimal cost and maximum exposure of social media?

You don’t have to create entirely new deals or promotions from what you may already have running on your store, but find a way to make it special for your social media followers, suggests Kelly Mason, marketer at Customer Paradigm.

Holiday campaigns on Twitter, benefitting from popular hashtags, streaming live content, and receiving information instead of just distributing it via social media are just some of the ways to stay ahead of the competition.

Related: Why Your Business’ Social Media Marketing Strategy Is Probably Wrong

Know your customers well

The first step to attracting customers and getting them to complete a sale is understanding their customer journey.

“Being able to document where they spend their time online, which social channels they use most, and what they’re reading or watching on those channels is a huge plus. Finding that crucial information is fairly easy to do, thanks to modern-day marketing tools and resources,” advises Paul Herman, ‎VP: Product and Solutions Enablement Group, at Sprinklr, a unified customer experience management platform for enterprises.

The better you understand your customers, the easier it is to reach them through a campaign optimised for their interests.

Master social listening

You could be using social media all wrong in the run up to all your holiday campaigns. Perhaps it’s time you used this platform to listen to your customers?

“Through social listening, marketers can identify major trends and product keywords in their industries,” says Herman. “For instance, knowing those keywords can help marketers identify which social platforms are more popular for a target audience. With that information, they can make smarter decisions about where to spend their money and which products or services to promote on each platform.”

Related: 10 Laws Of Social Media Marketing

Use the information gathered to determine what customers like about your product, what they dislike about it, and how you can improve upon it so they can buy more of it. The more of this data you collect, the better and more effective your interactions with customers will be.

Try something new

50% of consumers look for a video of the product they want to buy before going to an ecommerce store to buy it, according to a 2016 Google survey. “Video can be an extremely effective way to get your customers to take action – in this case, to make a purchase with your store,” adds Mason.

Video adverts are often used as an experimental tool in social marketing and switching it up on platforms such as Facebook Live, Instagram Live, Instagram Stories, or Snapchat – depending on your brand’s activity and your audiences’ interests – can help attract customers during seasonal periods.

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Researching a Franchise

Selling Your First Franchise? Consider These Key Pointers

You’re ready to franchise your business, but who do you sell to and how? Your first few franchisees may be the hardest to acquire, but the process will be smoother if you get some basics right.

Diana Albertyn

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Business experience gained running your independent brand will come in handy, but looking for franchisees is a different ballgame. “We have to attract the right people in enough numbers to make the difference; and, the key to more leads is to have a multi-prong strategy to marketing,” says franchise strategist and expansion expert Lizette Pirtle.

Using media (social, or otherwise), trained experts in franchise sales, and keeping in mind that whoever you sell to will become an extension of your brand, are important considerations before selling your to first franchisee:

1. Use (all) media wisely

Website marketing, print advertising and social media are just some of the many different ways to attract potential owners to your franchise. But the most cost-effect of the three may be a ‘tweet’ or ‘post’ away, says former Director of Marketing at the International Franchise Association and owner of Burris Branding and Marketing, Jack Burris.

Related: To Buy Into A Franchise Or Purchase A Licence? 3 Factors To Consider

“Three out of four people using the Internet are either on Facebook or LinkedIn or Twitter or all of them. Take advantage of social media,” he says.

“There’s typically no cost to play in the space except for the time that you need to invest to build your brand with a social media presence.”

2. Seek out franchise coaches or brokers

While this is a more traditional method of making reliable franchise sales, it’s a great way to form lasting associations that will take you beyond your first few sales. “Using broker networks is a great way to supplement your own efforts. However, you must spend time developing relationships with these people if you want to get results,” advises Pirtle. “Don’t think that just listing your opportunity with them is sufficient.”

Franchise coaches and brokers have multiple options for potential franchisees, so to put yourself high on their list of consideration when prospects enquire, you have to form memorable relationships.

Related: 3 Factors To Focus On When Opening Your First Franchise

3. Always consider the bigger picture

Out of all the people your marketing efforts attract, always keep in mind that few will check all the boxes and compromising could cost you in the long run.

“The franchise relationship is a long-term one. If you’re going to be successful as a franchisor, you should start with the attitude that every franchisee will be someone who you’ll have to live with for years to come. And nowhere is this philosophy more important than when awarding your first franchise,” says Mark Siebert, CEO of the iFranchise Group, a franchise consulting organisation.

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Researching a Franchise

To Buy Into A Franchise Or Purchase A Licence? 3 Factors To Consider

So you want to become an entrepreneur, but prefer support from an established brand? Franchising isn’t your only option, but is licensing right for you?

Diana Albertyn

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Opening a new business under a successful brand is a sure-fire way to success. Given that you’ve done your homework and the projections are looking good, you could be running a profitable operation in no time. However, the choice between buying into a franchise and purchasing a licence to operate under the brand, in exchange for a fee and portion of your profits can go one of two ways.

“It is essential to understand the difference between a franchising agreement and a licensing agreement, especially when seeking funding from a financial services provider,” says Morné Cronjé, head of franchising at FNB Business.

“Each business model is governed by a completely different agreement or contract and they operate in a unique way.”

Related: Should You Purchase An Existing Franchise?

When contemplating which option is right for you, consider how much independence you’d like to hold as a business owner, what kind of investment and share of the profits you’re willing to make and the type of relationship you’d like with your mother brand.

1Support vs autonomy

When toy industry behemoth Toys “R” Us filed for bankruptcy in September 2017, Toys “R” Us South Africa distanced itself from its US affiliates saying that the SA business is performing so well, it’s embarking on an expansion drive. How can the mothership be suffering while its SA counterpart is thriving?

Toys “R” Us SA is a privately-owned independent company operating under a license agreement with Toys “R” Us Inc. While the local version of the toy giant has purchased the right to use licensed material and intellectual property, the licensor has no control over the operations of the licensee.

With franchising, however, the franchisor exerts more control over the franchisee, but where the franchise lacks in autonomy, it makes up for in support.  “While entering into a franchise requires more of an initial investment, the benefits of an entire organisation supporting you are powerful,” say the owners of US-based fitness studio Barre Forte.

2Financial implications

While both franchisees and licensees pay an upfront fee and ongoing royalty payments to the owner of the brand or intellectual property – the franchisor or licensor – as a licensee, you bear the developmental cost and the risk associated with launching foreign operations.

Cronjé explains a franchising agreement as a duplication of a specific business model, governed or controlled through a franchise agreement where the franchisor holds all rights, including the business model.

“While franchise and license agreements vary significantly, looking at the cost distinctions between the two, it is generally more affordable to pursue a license agreement than a franchise agreement,” he says.

Related: Owning A Franchise – Good Idea Or Bad Idea?

3Relationship matters

The initial investment may be higher for a franchise operation, but access to a proven concept, an established customer base and ongoing product and service innovation could end up wing worth the cost. Not to mention the support franchisees get in the form of ongoing training and assistance with the initial setup process.

“When it comes to training, the licensing model would only train staff on the product they are selling,” explains Cronjé. “This is very different to franchising, where comprehensive training is provided on how to operate the entire business.”

Licensing generally includes some components of franchising, however what the difference is that specific operational support systems aren’t dictated by the group, which could bode well for you if you’re looking for the benefits of a big brand without the red tape.

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