Question

Why are Franchisees willing to pay a substantial sum of money to acquire a Franchise (like McDonald’s or Starbuck’s)?

Answer 1

Buying a franchise provides several other advantages to a well-known brand name that aren't open to an outsider starting a company from scratch. Perhaps the most important thing is that you have a validated operating system and instruction on how to use it. New franchisees can typically avoid many of the errors start-up entrepreneurs make, because the franchisor has already perfected daily operations through trial and error.

Before selling a new outlet, reputable franchisors conduct market research so you'll feel more confident there's a demand for the product or service. Failure to do sufficient market research is usually one of the biggest mistakes individual entrepreneurs make; it's done for you as a franchisor. The franchisor also provides you with a clear picture of the competition and how you can stand out from it.

The franchisee also has other advantages from entering into a franchising deal, including:

Because of the tried and tested formula the risk is small. Buying a franchise facilitates a greater chance of success. They have the advantage of owning a proven business formula that has been tested and shown to work well elsewhere. They also obtain the funding from the main company to set up the business and the training to effectively run it. The startup costs are lower because the business concept was already created.

The franchisee enjoys the benefit of national ads that would usually not be able to afford a small company. For certain cases with larger brands, they may have customers waiting to open their doors (in a new McDonalds for example). Since all the product selection and marketing has already been developed, you simply have to take care of the daily business operations. Your goal will be to grow from and develop from an existing base.