What is franchising?
Franchising is a form of distribution or marketing. It is a method of doing business by which, you, the franchisee, is granted the right to sell goods and services under a marketing plan or system prescribed in substantial part by the franchisor. It is a strategy for successfully penetrating, developing, dominating and achieving a disproportionately large market share.
Franchising In Canada
A new Canadian franchise opens every hour and forty-five minutes. According to information from an annual survey conducted by the Ontario-based company National Franchise Database Systems Inc., around 1,100 Canadian franchise organizations operate a total of 74,129 outlets. The franchise industry directly employs more than 1,000,000 Canadians.
Franchising's Success Rate
Franchising has experienced a very high success rate, and a remarkable staying power through recessionary times; many franchisors report a 90% + success rate for franchised businesses. Regardless of the type of industry, franchised businesses do have a higher success rate than independent businesses.
The University of Toronto's Faculty of Management carried out one of the most thorough studies on the performances of franchised businesses in Canada to date. Having access to provincial sales tax returns data from the Ontario Ministry of Revenue, they compared the performance of companies in several industry sectors. The businesses had been categorized as franchised or non-franchised, but the corporate names were not divulged.
The sample covered 18,000 companies in seven categories. After analyzing the data, they discovered that in six of the seven categories the franchised companies' performances ranged between 34% and 314% better than owner-managed businesses in terms of gross sales. This factor is extraordinarily important and demonstrates a key trend. The greater success rate was explained in terms of gross sales as a function of brand-name recognition, superior marketing, superior training, superior location and superior buying power.
These figures validate one of the single greatest benefits of franchising. The right franchisee that belongs to a good franchise system, with all other things being equal, will substantially outperform an operator of a non-franchised business.
Benefits of franchising
The start-up benefits to a franchisee include:
- high success rate
- access to a proven system
- easier access to financing
- reduced cash requirements
- access to decades of accumulated knowledge
- exclusive products
- higher advertising profile
- opportunity to build equity
- reduction in level of stress.
The main reasons that franchisees state for buying a franchise (in order of priority) are:
- desire to be their own boss
- financial growth and ultimate riches
- to be successful
- training and guidance
- to build equity (long-term investment).