How Does The Franchisor Make Money From Business?

Many entrepreneurs mushroom their business by franchising it. They trust franchisees with their brand, trademark and patents. The first question may come to your mind is, how do franchisors earn by franchising their business? Most people think that franchisors mainly earn from franchise fees. However, franchisors make money through royalty fees as well. This is basically an ongoing fee that franchisees pay to their franchisors on a regular basis. Therefore, earning money from the franchise system is way too different from doing so with other types of business. There are multiple income sources apart from selling of goods and services. 

So, which kind of business do you own? Is it any educational Institute? If you want to expand your business, then note that franchising can work wonders for you. There are several ways through which you can easily earn high profits from your education franchise. 

Here we have shed light on various aspects through which the franchisor can make money from business:

Additionally, you can earn a wide customer base for your business. Are you still pondering how you can earn money by franchising your business? Go through this article to know the magical ways through which you can make money by franchising your business. 

• Royalty Fee

Franchisors make fat money through royalty fees. This way they can easily cover overheads of a franchise system. As a franchisor, if you want to earn a high royalty fee, then you can increase the number of your franchise units. For example: you can aim to open at least 100 franchise units within five years. There are several ways through which franchisors can maximize their royalty fee. To know how to do that, you can go through the following points of this article.

• For new franchisees, invest in strong start

The objective should be to maximise franchise unit economics, reduce the time it takes for a franchisee to break even, and reduce the amount of time a franchise is open without trading. Note that every minute a franchise is open without trading is money lost.

Before you enter into a contract with franchisee, keep additional sources for other useful purposes:

• Additional travel expenses for on-site visits: Your field support staff may need to visit your franchisees in the months after the franchise’s launch to give assistance and direction. So, it’s essential to budget for travel costs ahead of time.
• Hiring personnel for pre- opening activities: Your franchise units may need staff to start the business operations. There may be chances that your franchisees may not have enough capital to hire employees. In this case, you can offer them financial support. 
• Staff for assisting franchisees: Franchisees do need support and assistance in the beginning. Therefore, you can hire staff to guide them on how to boost sales of the firm. 
• Standardise sales with technology: You need a high-tech system to record the everyday business. Thus, you can save some money for updating your business operations with the best technology. 

Furthermore, you need to assure that your franchisees will comply with the obligations and rules of the franchise agreement. It can assure amicable relations between you both.

• Communicate proactively with franchisees

Many franchisors are hesitant to have unpleasant talks with their franchisees for fear of damaging the franchisee’s self-confidence. This may lead to future difficulties. However, it is mandatory for a franchisor to have open communication with franchisees. This way a franchisee can feel secure and get a feeling of belongingness with the firm. You can scrutinize the business of the franchisee and assess what kind of problems he/she is facing. Afterwards, you can confront your franchisee and resolve every issue.

Instead of waiting for the franchisee to come to you, it is always best practise to discuss the problem with the franchisee directly. The sooner you speak with the franchisee, the sooner both of you can devise a strategy and determine if the conflict is permanent or temporary. 

• Introduce boost programs for struggling franchisees

You can introduce boost programme for the following franchisees:

• Franchisees who are still failing to reach their sales objectives nine months or more after establishing their franchise.
•  Who were originally successful but have struck a stumbling block.

You should offer the franchisee with the boost programme at no cost, as long as they agree to complete the task and follow the program’s guidelines. The boost programme may vary by industry and franchise system, but it will often include additional training for your franchisee and their core staff. Note that the higher a franchise unit will earn, the higher royalty fee they can pay you. So, always come forward and help your franchisees to boost the sales. 

• Identify low performers

There are basically two kinds of low performers:

• Franchisees who fail to meet the sales expectation.
• Bad and rude attitude of franchisees. 

If you want your franchise to earn maximum, keep on scrutinizing it regularly. You can easily train and instruct the franchisees who are unable to meet sales target. However, it is really hard to handle the franchisees who are rude. Therefore, before entering into contract with an individual you should be cognizant of the attitude of your franchisees. Remember, the behaviour of your franchisees play a significant role in business success and your earnings. 

If you are looking for prospective franchisees for a coaching franchise, try to associate with calm and intellectual investors. 

Conclusion 

By now, you should have a good understanding of some of the major drivers and influences on the performance of your franchise business. The most essential of them is the realisation that franchisee and franchisor success are inextricably linked: one cannot exist without the other. If you keep this in mind, both your franchise system and your franchisees can experience success.