Those two are the reason why some people ‘despise’ franchising and look to non-franchise business opportunities. Their main reason is that the fees and royalties are stripping off a large part of the business’ profit; in other words, franchise fees and royalties are expensive.
Non-franchise business opportunities (BOs) are smart – They see a market to tap into, and they use “No franchise fees, no royalties” to pitch to potential investors.
Although BOs have their rights to use whatever marketing methods they feel the most effective, but I suggest you not to fall into the trap.
With all due respect to BO owners, using the “no franchise fees, no royalties” pitch to recruit investors is simply misleading – Franchise opportunities have their own benefits in its own way (as BOs do), and most BOs are not telling the whole story behind the pitch.
That being said, before you take any investment decisions in BOs, you need to understand what franchise fees and royalties are for in the first place.
Franchise fees and royalties: The values of franchises’ brand names and proven systems
In franchising, you borrow the franchise’s brand name and system in exchange for franchise fees (usually last for 5 years and renewable) and monthly royalties (usually a percentage of sales or profit.) You can borrow a BO’s brand name and system, too, without any franchise fees or royalties. But take heed, here is the difference between a franchise and a BO:
Franchise opportunities are time-tested and allow you to enjoy the luxury of no trial-and-errors in brand and business building. In the other hand, BOs are generally not time-tested, and allow you to take part in their successes and failures in building the brand name.
So, in other words, with BOs, you are exposed to a larger failure risk in exchange for the “no franchise fees, no royalties.”
Don’t get me wrong – Many BOs are great business: They can, eventually, turn their business model to franchising to boost their growth beyond the low rooftop of BO (while some others prefer to keep their BO status.)
What I’m trying to persuade you to do is to analyse (and weigh) the opportunities presented to you – Is a franchise opportunity can help you achieve success better with the fees and royalties related to it? Or, is a business opportunity can help you achieve what you want without the burdening fees and royalties? How’s the potential of the franchise or BO?
All in all, the biggest analytical question is this: Will the opportunities, either franchise or non-franchise, possess long business life-cycles – Long enough to allow you to recoup your investment and benefit from your business way beyond the reached ROI milestone?
Do not easily fall into the ‘no franchise fees, no royalties’ trap – Know that everything in the world bears the concept of yin-yang (pro and cons, plus and minus, god and bad, upside and downside, etc.): There’s got to be something in return at the expense of the ‘no franchise fees, no royalties’ pitch.
In my opinion, buying a franchise is a better option than invest in a non-franchise opportunity, as long as the amount of the franchise fee and royalties are justifiable.
What is your opinion on this? Please share yours by commenting on this article 🙂
Ivan Widjaya
Franchising rules
Image by nusrin.
