How much does it cost a franchising system?

By SirGerardThe1st | Franchise matters | 15 Jul 2020

I always say that practically all brands and concepts are franchisable, but what is not necessarily franchiseable is a company.

Just as the franchisee is required to make an initial investment and a permanent investment when purchasing a franchise, the owner of the brand and the concept must also make an initial and permanent investment to fulfill his responsibility to create job sources and keep running his concept and his brand.

Companies that do not have sufficient financial support to face the investment necessary to launch their franchising programs, should abstain and continue with their own businesses as they have been doing.

The franchising industry is of an extraordinary complexity, and it is no coincidence that in the USA, dean in the matter, more than 35% of franchisors have less than 5 franchises. There are a lot of reasons, but the main two in my opinion are, 1) the little idea that the franchisor-to-be has of the investment he has to make to become a franchisor, and 2) the lack of professionalism of the franchisor's management team to manage the growth once they are on the road.


The following points are the most relevant to be considered as initial franchisor's investment:


A- Own premises. We discount that whoever wants to sell franchises has already proven his brand and concept in more than one territory. If you do a good business, better "self-franchise" a few times to see if you're really going to be able to replicate that success elsewhere and with other people. This investment can be very high, depending on the business.

B- Trademark registration. It seems like a truism. But you would really be surprised if you saw the number of franchisors that do not have all the ducklings in line when auditing the records of logos, phrases, nomenclatures and own products and procedures, in all the corresponding classes. For example, ask how many have the trademark registered in class 35. Not to mention if we go abroad.

C- Contracts and legal documents. Hire a franchise attorney to review and correct everything related to these issues, which are constantly evolving, especially issues related to tax obligations and labor issues.

D- Operations Manual. Make sure that the proprietary procedures that describe your system are written and tested to protect your interests, and that they are in place to avoid inconvenience in auditing them.

E- Training system. Training procedures must be written for all positions and updated. Training must be given, exams must be taken, and passing or failing must be done for all franchisee’s personnel. If an employee doesn't tune himself with the brand's requirements, he shouldn't be able to work in this franchise. The responsibility lies with both the franchisor and the franchisee. The franchisor acquires the status of a learning institute in this area and should consider acquiring an e-learning platform to train their franchisees and employees remotely. A certification of excellence in staff training by a secondary, tertiary or university institution should also be considered as an addition to brand building.



F- Structure of the franchising company. This is where the franchisor's commitment is seen, since serious growth cannot be faced without the development of a suitable management team. First, you must set the classic parameters of vision, mission and values for the growth plan. Then you have to create a structure with measurable positions and responsibilities, set objectives and goals and control them and act accordingly if they are not achieved.

G- Development of a franchisee's management & control plan. The franchisee must receive a parameter control system within his franchise package, with accurate and easy to calculate metrics, and with a method to teach his employees to approach customers and serve them according to the standards established by the franchisor, and all this controlled by a system of rewards and punishments. It is necessary to consider the purchase of some consumer data collection platform at the franchise location for its subsequent intelligent processing and return with operating corrections. There are several systems on the market designed to bring excellence to the operation of a commercial premise.

H- Accounting, billing, stock system. It is very important the advice of a franchise specialist accountant who recommends which is the best system that allows the franchisor to take the daily numerical data of each franchise and process them to obtain periodic reports of operation. The chosen software must be implemented in all franchises and operated centrally. Franchisors who are already operating multiple franchises should periodically assess whether there is a better accounting control system on the market than the one they are using, and assess a general change.

I- Building requirements. In the first place, it is necessary to determine what are the primary requirements that are required of a franchise in terms of the premises in which it is to be installed. In reality, it is necessary to have a standard procedure for choosing a suitable location. Then, with the help of a retail specialized architect, the internal and external renders of the different franchise modules must be made, depending on the size of those different modules. Then they must make floor plans and layout, studying circulation flows within the store. You have to know at a glance where a cashier furniture or other particular equipment has to be located. It is necessary to exhaustively list all the machines, furniture, equipment, posters, accessories and the "this and that" that make up the decoration. Furniture and equipment installation must be supported by installation sheets and plans.

J- Demographic analysis. Before granting a franchise, the demographic data of the territory must be known in as much detail as possible. There are several geolocation systems on the market that analyze a territory, its pedestrian and vehicular flows, possible circulation and supply problems, and select the appropriate locations for franchise installation. Buying a license for any of these systems is an excellent investment that can save you a lot of headaches and search and analysis time.


K- Business intelligence. The evolution of artificial intelligence and machine learning systems are revolutionizing retail. From POS point-of-sale systems, to sophisticated CRM systems that predict consumer behavior. The franchisor can achieve a lasting competitive advantage by investing in these systems, and in point of sale consulting. It will also be increasingly necessary to invest in intranet systems to communicate with franchisees and to have the franchise location optimally all day and every day.

L- Internet site. The evolution here is overwhelming. Internet sites become obsolete in a short time and a poor image is given to the consumer and potential franchisees if they are not updated regularly and systematically. Here you have to invest heavily in SEO (search engine optimization) programs, in the incorporation of "mobile friendly" techniques, in the implementation of friendly navigation, in the dynamic presentation of promotions, offers, advertisements, chatbots, calls to visits of proximity, etc. More than 70% of internet browsing is done by mobile devices. This cannot be left to chance and franchisees must collaborate from each territory, implementing the corresponding actions.

M- Development of printed, audio and video franchise material. From flyers to communicate territorially, to personal cards, posters, folders, brochures, menus, catalogs, etc. The franchisor must develop all this material and have permanent stock of each item to supply its franchises. Each of these items must be taken as one more product to supply the franchisee. In addition, each item must be accompanied by an explanatory sheet of its operation, its objective and delivery methods. All this also applies to the audio and video material that must be exhibited by the franchisee in a comprehensive in-store marketing program.


N- Development of a Grand Opening event and a marketing program for the first 12 months. The opening of a franchise must be a memorable fact in each territory, for a long time. That is why it is necessary to invest in a Grand Opening procedure and develop this event in association and collaboration with the franchisee. The franchisee must also be supported in person and financially in the first months of operation while traveling through the learning curve. This should be taken as an investment by the franchisor in their marketing program.

M- Discovery Day. This is the potential franchisee’s first contact with the franchisor. It is a day in which the franchisee goes through all the sectors of the franchising company, stopping at each one of them to know in depth what the values of the company are, the attributes that make the brand unique and the concept, and the first contact with the management team who will accompany him throughout the period in which they stay together. As you can see, it is of transcendental importance to have planned each and every one of the potential franchisee's contacts with all sectors on that day.

O- Franchise marketing program. When the franchisor launches its franchise program, its business changes dramatically. Now he must redo his marketing and communication. For this, he must have a professional front-line marketing team (both external and internal) that knows how to develop and implement new communication campaigns, promotion, events, public relations, press, social networks, mobile device interaction, in-store marketing, market intelligence system, etc. The quality of each marketing campaign will determine the success of the brand, and the attraction of new franchisees to the system.

P- Consulting fees for the development of a franchising system. Here you need an experienced franchise professional to order, compile, write, and make available to franchisors and franchisees all the documents and procedures it takes to sell and put a franchise into operation. It is also responsible for ensuring that all the above points are covered and, at least, those that have not yet been completed are in the development stage. Normally, this work is implemented through a fixed fee for the consultant's working hours and a success fee for the sale of franchises. Franchises should not be sold if all of the above points are not operational. That is a great responsibility that the consultant acquires.


In conclusion, it is necessary to have significant economic and financial support to embark on the project of building a franchise network.


A brand is not built in the short term and without investment.


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Franchise & Brands veteran. Experienced business owner. I began with Bitcoin in 2011. I am maximalist of nothing. Ok, frankly speaking, I am maximalist of decentralization.

Franchise matters
Franchise matters

Reflections of a franchise industry's "Old Wolf", after 30 years in the international franchise business. All opinions are mine, and cover aspects that serve both franchisors and franchisees. Love for brands and entrepreneurs around the world.

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