Monday, May 02, 2011

Franchise

The word franchise has interesting origins. It comes from Anglo-French, when it meant, freedom, liberty, and from Middle French, franchir, to free, and earlier from Old French franc, free.

Free? I'm sure there are plenty of franchisees who feel 'free' in the sense that they run their own business and don't have a middle manager further up the line telling them what to do. But owning a franchise isn't a free process. I remember being told by a colleague who had a cafe under the Robert Harris franchise system that the amount of money he had to fork out to the company each month was excessive, and, in the end he decided it was more economical to let the franchise go and simply run his own business unrestricted by commission charges.

I've had a similar report from a Mr Green franchisee. And indeed, back in the distant past I was a Bon Brush saleman. We were effectively franchisees to the company, and supposedly ran our own business. But the costs of paying the Bon Brush company cut the profits considerably, and I suspect a lot of franchisees find this to be the case with their own franchises.

It's something of a two-edged sword: on one hand you have all the advantages of a brand name behind you; on the other you have to pay the company a considerable percentage for the privilege of having those advantages.

In the end it's the company at the top that still makes the big money. Not that that's likely to stop people taking up franchises. According to one website, in the US franchising accounted for more than half of all retail sales. As far back as 2001 franchising employed nearly 10 million people; no doubt the number is well up on that now.

Some people do very well out of franchises, but I suspect that their profit margin is very high and that the commission they pay out is consequently a smaller proportion of that margin. If it's not, kiss the franchise goodbye; it's only eating up your money.
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