Is Franchise ownership the right choice for you?
You want to run a business and have heard about franchising — and you’re intrigued, but you aren’t sure if a franchise opportunity is the right choice for you. You’re in the right place. This page will give you an overview of what franchising is, giving you a better foundation of knowledge as you begin your journey toward (potentially) being a franchisee.
Is Franchise ownership the right choice for you?
Franchising is about following a proven and successful system. The ability and willingness to follow directions are key markers of someone who would make a good franchisee. After all, if the franchisor has already established a franchise model that works, a person would be wasting time and money if they tried to fight the system and create something different. Franchise ownership is often correctly referred to as: “In business for yourself, but not by yourself”.
Benefits of Franchising
- Established Brand and Reputation: Franchisees benefit from the use of an established and recognized brand name, which can provide instant credibility and a customer base. The franchisor has already invested in building brand awareness, marketing strategies, and a proven business model, which can help franchisees get off to a faster start.
- Training and Support: Franchisors typically provide comprehensive training programs for franchisees and their staff, covering various aspects of running the business, including operations, marketing, and customer service. Ongoing support is also provided, which can include assistance with site selection, supply chain management, and continuous training updates. This support can be invaluable, especially for individuals with limited business experience.
- Proven Business Model: Franchisees benefit from a business model that has already been tested and proven successful. The franchisor has refined the operations, identified best practices, and developed systems and processes that can be replicated across multiple locations. This reduces the trial-and-error phase and increases the chances of success for franchisees.
- Economies of Scale: Franchisees can often leverage the purchasing power of the entire franchise network to obtain better deals on supplies, equipment, or inventory. By buying in bulk or through negotiated contracts, franchisees may be able to secure cost savings that wouldn’t be available to independent businesses.
- Marketing and Advertising Support: Franchise systems typically have centralized marketing and advertising strategies in place. Franchisees contribute to a marketing fund and benefit from collective efforts, which can include national or regional advertising campaigns, promotional materials, and online marketing strategies. This shared marketing support can help drive customer traffic and enhance brand awareness.
- Risk Mitigation: Compared to starting an independent business from scratch, franchising can offer a lower level of risk. Franchisees are investing in a proven business concept with a track record of success. The franchisor’s support, established systems, and brand recognition can help mitigate some of the risks associated with entrepreneurship.
- Expansion Opportunities: Franchising allows franchisors to expand their brand rapidly without incurring the capital expenses and operational responsibilities of opening and managing individual locations. Franchisees help fund and operate new outlets, allowing the franchisor to expand into new markets or geographic areas more efficiently.
Disadvantages of Franchising
- Cost: Franchising typically requires a significant upfront investment. Franchisees must pay franchise fees, royalties, and other ongoing expenses, such as marketing fees or required purchases from the franchisor. These costs can be substantial and may limit the financial resources available to franchisees.
- Lack of Control: Franchisees have to operate within the guidelines and systems established by the franchisor. They have limited control over decision-making processes, including product offerings, pricing, marketing strategies, and operational procedures. This lack of autonomy may restrict a franchisee’s ability to respond to local market conditions or implement innovative ideas.
- Shared Profits: Franchisees are obligated to share a portion of their profits with the franchisor in the form of ongoing royalties or other fees. This arrangement can reduce the franchisee’s overall profitability, especially during the initial stages when the business is still establishing itself.
- Dependence on the Franchisor: Franchisees rely heavily on the franchisor for ongoing support, including training, marketing, and operational assistance. If the franchisor fails to deliver on its commitments or experiences financial difficulties, it can adversely impact the franchisee’s business.
- Limited Flexibility: Franchisees must adhere to standardized processes and operational guidelines set by the franchisor. This limits their ability to make independent decisions or adapt quickly to local market needs. Franchisees may find it challenging to implement changes or innovations that could benefit their business.
- Reputation Risks: The actions or performance of other franchisees within the same franchise network can impact an individual franchisee’s reputation. If other franchisees provide subpar products or services, it can reflect poorly on the entire franchise brand, including the individual franchisee’s location.
- Contractual Obligations: Franchise agreements are typically long-term commitments, often spanning many years. Franchisees may face difficulties or financial penalties if they wish to terminate the agreement prematurely or sell their franchise before the agreed-upon period.
Canadian Franchisee Statistics
Most people don’t understand the impact that franchising has on an economy and would be surprised to learn that around 45% of all retail sales in Canada are generated by franchised businesses. This is comparable to the United States where approximately 50% of retail and service revenue is generated by franchised businesses.
- Canada has the 2nd largest franchise industry in the world, trailing just behind the U.S.A.
- There are between 1,200 and 1,300 franchise companies operating approximately 76,000 franchised outlets in Canada.
- Around 4,300 new franchise outlets open in Canada each year.
- It is estimated that a new franchise in Canada opens every 2 hours 365 days a year.
- One franchise operation exists for every 450 Canadians.
- Approximately $1 of every $5 is spent on goods or services at the franchise.
- The Canadian Franchise Association has almost 500 corporate members nationwide.
- The hospitality industry is the largest single sector, accounting for almost 40% of franchised brand names.
- Approximately 500 of the largest U.S. franchisors have introduced their franchise systems to Canada.
- The franchise business in Canada represents over $100 billion in sales annually and continues to grow.
- Franchising is responsible for 5% of Canada’s Gross Domestic Product (GDP).
- Franchising employs over 1.5 million people in Canada or expressed in a different way 1 out of every 10 people is employed in a franchised business.
- Ontario leads the rest of the country in franchising with 56% of franchises headquartered in Ontario (primarily in the Greater Toronto Area), and 65% of all franchise outlets operating in Ontario.
- The average initial franchise fee is $25,000 and the average total initial investment required by a franchisee is between $150,000 and $200,000.
- Of all the franchises opened in Canada within the last 5 years, 86% are under the same ownership and 97% are still in business.
- In the restaurant sector, 35% of all sales are from franchise operations.
- In the retail sector, 45% of all sales are from franchise operations.
- Franchising is active in over 30 businesses, retail, and service sectors.
The Typical Canadian Franchisor has:
- 12 corporate units and 63 franchised units for a total of 75 units.
- Been in business for over 17 years.
- Annual growth of 4.4 units per year.