Franchising is a great way for new entrepreneurs to establish themselves as business owners. Even for seasoned investors, franchising allows them to grow their business portfolio to span across multiple industries – protecting their investments. Learn how the franchise business model works with our comprehensive guide. See our analysis to get a full understanding of the franchise landscape for 2024.
What is the Franchise Business Model?
Franchising is an investment model that allows individuals to own and operate their own business using the branding, products, services, and operating system of an established company. The franchisee owns and runs the business individually, but the franchisor provides ongoing support and guidance.
This concept is mutually beneficial for both the franchisee and the franchisor. Franchisees get direct access to a proven business model and are able to grow their network with likeminded entrepreneurs. Franchisors get to expand their brands without spending a large amount of capital to open multiple locations themselves.
What’s the Deal with Franchise Fees?
There are multiple different types of franchise fees. And while they may seem daunting to a new franchisee, all of these fees pay for various levels of support from the franchisor – making business ownership a bit easier.
- Initial franchise fee: This is a one-time payment made to the franchisor at the start of the business relationship. This fee grants the franchisee the rights to use the franchisor's brand name, products, and services. It typically covers the cost of securing the franchise agreement and any additional expenses associated with getting a new location up and running, including franchise training and support.
- Royalty fees: These are ongoing payments made by a franchisee for the life of their agreement. Royalty fees are typically calculated as a percentage of the franchisee's gross sales and are usually paid on a regular basis – often monthly. For example, a franchise might charge a 6% royalty fee. So, if a franchisee has monthly sales of $100,000, they will pay $6,000 as the royalty fee. These fees compensate the franchisor for the continued use of their brand, products, and support services.
- Ad royalty fees: A subset of royalty fees, ad royalty fees are contributions made by franchisees to a collective advertising fund managed by the franchisor. Also calculated as a percentage of gross sales and paid regularly, these fees are used to finance regional or national marketing and promotional campaigns for the franchise brand. This ensures consistent advertising efforts across the entire system.
- Other fees: In addition to the above fees, franchisees might incur additional costs such as renewal fees, franchise training fees, and software or technology fees. These can vary widely based on the specific franchise system and might be related to periodic updates, ongoing training, or system upgrades essential for the franchise's operation.
With multiple fee types to consider, you may be wondering, how does a franchise work in terms of profit? In other words, how does a franchise owner get paid? It's important to note that profit isn't guaranteed, and success depends on factors like location, management, and market demand. However, a reputable franchise brand should have resources to help you find the best site for your business so you can make the most of their opportunity.
To calculate your earnings from your business, subtract your operating expenses (such as utilities and payroll), franchise fees, and any other business-related costs from your total revenue. The remaining amount is your salary.
Trends in the World of Franchising
Franchising, like all sectors of business, evolves in response to societal changes, technological advancements, and shifts in consumer preferences. Some of the latest trends in franchising include:
- Technological advancements: With the rise of digital platforms and more franchises adopting mobile apps, brands have been able to expand their reach, improve operations, and enhance the customer experience.
- Sustainability: Many franchises are incorporating sustainable practices into their operations due to increasing consumer demand for eco-friendly products and services.
- Flexible models: There's a trend towards more flexible franchise models, such as pop-ups, mobile franchises, and non-traditional locations (like airports or college campuses). Home-based franchises also saw a big boost recently.
- Natural disasters increase demand for restoration franchises: The Earth’s shifting climate is leading to more frequent weather-related issues – securing the need for restoration franchise businesses. While the western U.S. grapples with extended wildfire seasons, the eastern states face heightened flood risks from intense rainfall.
Remember that trends can vary depending on your region of the country. If you're considering a franchise investment, it's essential to stay updated on current trends, conduct thorough market research, and consult with experts to make informed decisions.
How Does a Franchise Work with Lightspeed Restoration?
Lightspeed Restoration is a leading restoration franchise backed by Home Franchise Concepts, which is among the most extensive franchise networks in North America. We have territories available for investment across multiple states. We also give business owners the option of converting their existing business to our Lightspeed restoration network.
All of our franchise partners receive top-notch training from our team of industry professionals. And we don’t require any previous experience to own one of our locations. As a Lightspeed Restoration franchisee, you’ll quickly become the trusted name your neighbors can call when disaster strikes.
To learn more about our restoration franchise opportunity, request information today, and one of our franchise development representatives will be in touch with you soon