Cost of a franchise and the franchise concept
There are many reasons why people type “Cost of a Franchise” into their google search bar. Many, I would imagine are those people who are fed up of working hard only to make money for their employers, to be working long hours without reward and who feel they are missing out on time with their family. The concept of a franchise appears to be a very popular way for you to start your own business and may seem like a dead certain way to make a profit. But at what cost? I would like to give you some franchise information which will hopefully give you something else to think about – a different way to leave the 9-5 grind and start your own business but at a fraction of the cost. You can get the support you need to run your business, hands on advice for webpage, branding, marketing, social media and full training with your products – a list of the best places to order supplies form with discounts. All of these benefits apply to a range of businesses without the restrictions of a franchise and importantly without the ongoing license fee that franchisees have to pay, usually on a monthly basis.Read through our subheadings for indepth information on franchise costs and see if there really is a better way for you to be your own boss.
Cost of a franchise
Franchises are not cheap. I understand that’s relatively speaking – if you are a multimillionaire the start up cost of a £10,000 franchise is a dip in the ocean. For those of us who do not have £10,000 stuffed in our mattresses, £10,000 may as well be £10 million.
According to the British Franchise Association in 2015, the average cost of a franchise was £42,200.
The cost of a franchise depends on the brand. Let’s compare 2 franchises:-
“McDonalds” franchises may start from £150,000 to in excess of £1m, depending on your anticipated profit. Then you may have a franchise fee of circa £30k, a security deposit of circa £10k, another £10k for stock and working capital (the term used for money you need to pay bills etc before you make any profit). A number of larger franchises want to see that you have liquid assets of your own sometimes in the region of £500k or more – oh and you also need to be a net worth of 1.5million! (figures taken from internet December 2016.)
Then we have the cheaper “Creation Station” children’s franchise which does arts and crafts with children and adults. You are based at home but hire premises or go to a customer’s house for parties etc. It has the entry level investment of £5,500 + vat and you must work within a specified area unless you have a specific agreement to be outside your area. The range of investment levels rise to £16,995 + vat. You need a pot of money of around £1000 on top of this to pay for your online training and other expenses. Then you have your license fee which for the Creation Station is a fixed amount of £100 + vat a month for lower level investment franchisees and £200 + vat per month for higher level. (Figures correct as at December 2016). So already your £5,500 + vat (£6,600) investment is now £9,040 for the year minimum! ( £6,600 investment, £1440 license fee for 12 months, £1000 working capital.)
If this doesn’t sound like a good fit for you then read on…….
Additional costs of franchising and the license fee
But what is the true cost of a franchise? We all see the advertisements – “own this franchise for just £5,000” – but before you even get “keys” to your franchise you will have lawyers and possibly accountants fees.You are signing a contract for future costs – it’s not just about handing over one fixed amount. The advice to have legal expertise involved can not be stressed highly enough. If you are leasing premises you will have those costs, you may have the cost of kitting out your premises (if not provided), pc licenses, insurances, utilities, uniforms and the like, signage and equipment rental – just for starters.
Profits are not instant because of the high outlay so you will need a “working capital” – a pot of money to pay your bills or initial expenses to get you through to a time when you are making a profit. Your franchise of say £5,000 is the money you pay for their brand, operating system and support.
So the initial outlay cost for a franchise varies. Let’s say you have paid all your initial start up costs and you are ready to begin – congratulations! You get your first paying customer and oh – that money has to go to paying off the License Fee. This is also known as franchise fee, royalty fee – any other name which simply means a payment from you the franchisee to the franchiser, usually monthly, on top of the initial investment you have made.
There are a number of ways license fees are calculated. Some are very complex and work out on average 4-9% of your gross revenue but this really does vary. Other franchisers may ask for a fixed fee each month. But essentially, every bit of money that you earn, a percentage of it is paid to your franchiser.
There may well be an additional amount you have to pay for the marketing fund too. This is for your franchiser to market their brand – not necessarily your premises or location – but you can sleep warm with a nice, fuzzy feeling that you have just helped pay for a big marketing campaign for someone 400 miles away!
Everything in business is hard work. Having a franchise hopefully means you are running a business that you love doing. But in my opinion, being a franchisee is only one step away from being employed – your hard earned money is not all yours. There are rules and expectations that are not your own but which you have to follow. You have restrictions on where you can trade and what you can trade. Yet you have all of the responsibilities of being self employed. The franchise concept is that you have support – and I would hope for the money that you pay that you do, but is that the only way to run a business that you love?
The Alternative to a Franchise – How to be your own Boss with the support of a franchise but without the cost or restraints
So how about running your own business, keeping all of the profits, having your own brand, webpage, designs and expert help, training in everything you could possibly need from creating your products to social media? Sound good? And if you want to work from home then this is ideal.
We offer you everything a franchise can offer you by way of support and training and guidance, for a fraction of the cost of a franchise. The best bit is that it is your business, with your business name and branding and you keep everything you earn. No license fees, royalty fees, franchise fees or any other fee that it may be called!
We offer complete packages for you to set up your own creative business from home, in keepsake and personalised gifts from home. Our home based business opportunities are tailored around the products you wish to work with. Dependent upon which level of investment you choose you will receive access to 24/7 online business training, product training either online or in person, supplier discounts (the benefit of a wholesale account even though you will start off small!) a webpage, your own branding and business name and logo, membership to a totally supportive facebook community for lots of tips, advice and general support, a launch, social media training – everything you could possibly need!
If you compare this to a standard franchise, we tick every box and more – the amazing factor is that all the money you earn is your own – we have no license fee. It’s your business name and logo and branding – not ours – so you really can become that entrepreneur! If you want to work under someone else’s name and brand then that’s a purely personal choice. Imagine having your own name, or a name that’s special to you which identifies this business as belonging to you and you alone? If you expand and want to employ people or have premises across the country would you rather it be done with you being recognised as the brainchild behind it and for people to recognise your growth?
Being your own boss and working from home gives you massive flexibility that not all franchises can handle. If you have to go out to run classes for example but you have a sick child at home or are sick yourself then yes, you can cancel that class, but then you lose the money you may have spent to hire the hall and you need to let all your attendees know and you have to try and reschedule and pay back any fees if they were paid in advance and the customer can’t reschedule and suddenly there are lots of “ands”, and it all becomes a stress…………
Working from home as your own boss gives you that flexibility.
Competition in the market place
With a franchise you will be the only franchise in a certain area – albeit it could be a very small area! Let’s invent a standard children’s franchise – it may advertise as a marketing magnet that you will have an “exclusive territory of 5000 children”. “I will corner the market!” I hear you cry!! But look closely – the secondary school at the top of your road has 2000 children in it. The 2 primary schools virtually opposite the secondary school have 500 between them. The next secondary school is less than 2 miles away with another 2000 children in it and on the way there you pass another 3 primary schools. Well over 5000 children along a stretch of road less than 2 miles long. That money you paid to corner market may be a very small corner indeed. Then you have the flip side to that – your “area” may be where you live, but your partner/best friend works in a school 5 miles away in another franchisee’s area. You would have been able to set up loads of events at their school with your franchise but you can’t – because it’s in someone else’s “area”. Business links may be completely scuppered because they are not in your area.
Now this type of model is standard in most franchises – that’s the initial attraction until you realise it may not be such an attraction. The way we work at Create Your Way to Success is that you are free to trade anywhere you like. However, if there is already another business we have supported, offering the same products in that area we ask that you be respectful and not tread on any one’s toes – but by all means, if a business link works for you then optimise it. We also offer exclusivity in the market through our higher level of investment opportunities.
What is the difference between a business opportunity and a franchise?
This really ties in with the paragraph below on the pros and cons. With a franchise you are working to someone else’s standards. Their reputation is your reputation. You may have the flair of an entrepreneur but you will use their products and deliver them in their way. Any events or initiatives you want to do will be dictated by the franchiser. A franchise does come with the mantra of “you are not working alone”. You use their business system which is a tried and tested and usually successful model and you get ongoing support in areas that have been detailed and specified in your contract. A franchise will be fairly inflexible with what you can and can’t do.
I read on a franchising web page once that the drawback of having a business opportunity as opposed to a franchise is that the biz op does not get the management systems, training, ongoing support, marketing and other support service that are the hallmark of that franchise relationship. We are truly fabulous because we definitely give you all of that!
Pros and cons of being your own boss versus being a franchisee
-With our opportunity no one dictates to you. You can wind down at times of personal stress or really busy family times, and you can build back up alongside your own expectations. You can do this with a franchise but you will still need to pay their license fee whether you have earned an income that month or not.
-You are beholden to only yourself with our opportunity.
– No royalty/commission fees/marketing for someone else’s area fees. Franchise fees are set at the start of your contract and varying them is a complex issue. You are legally bound to pay these fees no matter what.
-No ongoing fees for rental of signs or equipment that you have to rent from the franchiser at their dictated cost.
-You can source your own products, make relationships with local suppliers if you want to support local trade, negotiate your own discounts, use your own initiative to price things as and when they are “on trend” in your local market or to respond to movements in your local market to make the most of an opportunity – chances are the Head Office in Franchise World will not know what is popular in your immediate area.
-The big one – all the profits are yours to keep. Your income is directly a reflection on your work. A franchise will charge you a fee based on you gross revenue – not even based on your profit. If your utility bill goes up for example, that will have to be met out of your portion of money – not the franchiser’s.
-You can work around family or other commitments. You have ultimate flexibility in running your own business.
and to finish off here is a video from our founder on her thoughts on Franchising..
And if you haven’t done so already make sure you take our quiz on which sort of franchisee you are…