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Updated 25 Mar 2017


4 Tough questions to ask yourself before settling on a franchise to invest in

Assessing the success of a franchise is about more than just gauging its popularity. Here’s how to make the best decisions for your empire-in-the-making. 


Diana Albertyn, 15 February 2017  Share  0 comments  Print


All the answers to your unique business lifestage questions

So, you have your capital ready and you know you’d like to become a franchisee – but you’re not entirely sure whether to invest in a product- or service-based franchise? There’s much more to consider than what’s going to make you the most money and how fast. Are you suited to a fast food store with a high daily product output, or do you see yourself as a travel agent selling people their dream experiences?

Running a service business is different to running a product business. When it comes to service, you’re at the coalface – customers will come back to complain and they will expect to get what they paid for, immediately. When it comes to products, it can be argued that you have an opportunity to rectify any issues with a product substitute or refund.

As you take further steps toward starting your own business, you’re going to have to decide: Do I have what it takes to deliver a truly unique and satisfying customer experience? – Because that’s what service driven businesses are all about.

Related: Top advice from franchisees


TAKE NOTE

“The most important thing you can do before deciding what to sell is to think. And the more you think about a product or service before you bring it to market, the better your decisions will be.” – Brian Tracy, CEO of Brian Tracy International, Speaker and Author.


Identify your suitability to either a franchise that provides a product or service by checking the vital points to consider below: 

Know the difference

What is a product-based franchise?

Anything that is tangible for consumer consumption is a product. Usually these are franchises that deal with food and retail items. You usually cannot customise these items and they are returnable or exchangeable. 

What is a service-based franchise?

Services are considered intangible. For example, a law firm, a gym or gardening service. These types of businesses usually boast a lot more locations, and franchises that provide a service may outnumber product-based franchises, but they’re not always as popular. These niche operators cater to specific needs, providing services that make life easier for consumers.

Determining your characteristics

Characteristics

1. What are your (actual) skills? 

Coming from a corporate background, you may have led the best sales team in your company’s history. According to startupnation.com, the main thing to keep in mind is that you have to be a brilliant salesman to succeed in a service business.

“With a service business, you’re typically heading out to do the business,” says Lori Kiser-Block, vice president of FranChoice in the USA. Meanwhile, management is a key trait in selling your product successfully as you are most likely going to be hiring and dealing with lower-skilled sales employees.

2. What’s your leadership style?

Your leadership style also determines how you run your business. In a service franchise, you’ll arguably have a few skilled workers to supervise and flexible hours mean planning your week more accurately. However, the demand in time, customer satisfaction and the actual items is very high when you’re retailing a product.

Related: What does a franchise really cost? 6 Fees you may not have considered

3. What kind of franchisor support will you need?

When it comes to marketing, product-oriented franchises usually provide national advertising, so you don’t have to pay for this directly. This can be looked at as a good or bad factor, based on the marketing royalty fees applied by some franchisors, though. If you’re looking to sell a product as a franchisee, also note that franchisors in this field tend to be stricter in terms of suppliers, as the demand for quality and consistency in their tangible goods is high, to protect the brand’s credibility.

4. Are there other revenue streams within the franchise? 

Think Starbucks and Krispy Kreme. Coffee and doughnuts. And books, CDs, along with branded merchandise. At one point, Starbucks was creating and selling its own music too. When primary product sales slow, you’re able to make money from the secondary items on sale when you’re in goods retail.

“Multiple revenue streams are important in any franchise,” says Mark Lassiter on franchise.org. “They provide a time-tested way for an owner to reduce risk and allow a more predictable cash flow from a variety of sources, rather than relying on a single, traditional product or service. When multiple revenue streams are created, franchisees have the ability to reach the same loyal customer more often and with more touch points.” 

Making the decision to provide a service or retail a product as a franchisee depends on how flexible you want your hours to be, your personality and skills, as well as the opportunity for additional income in your business to give consumers more options and retain loyalty. Ask yourself the tough questions before you sign up for a franchise, because you don’t want to find yourself in a business that’s at odds with your wants and needs.


DO THIS

Consider the following when deciding on what type of franchise to sign up for:

  1. What you want your work week to look like – service businesses can work on an appointment only basis, allowing you to set your own hours.
  2. Your overhead costs – you can start a service business from home or run it on a mobile basis (depending on what franchise you choose), minimising rental costs.
  3. Your passion – if you’re looking to solve a problem, seeking constant ways of improvement, retailing a product allows you to do so.
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About the author


Diana Albertyn


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