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How Franchising Compares to Other Revenue Streams

Franchising often behaves similarly to other income sources like corporate jobs and non-franchise business ownership — but it offers additional benefits as well.

By Chris IrbyCopy Editor
8:08AM 07/05/24

While industry passion and personal fulfillment are factors that people consider when pursuing a career, most are primarily driven by the more pragmatic goals of earning income and achieving financial stability. One such avenue is franchising, a business model that offers the prospect of owning and managing a business under an established brand with proven systems and support. But how does franchising stack up when compared to other potential sources of income?

Franchising Is a Proven Business Model

Franchising is appealing to entrepreneurs due to several distinct benefits.

Brand Recognition

Franchising provides access to a recognized brand, significantly reducing the time and resources needed to establish a new business. Brand recognition can attract customers and instill trust, giving franchisees a competitive edge in the market.

Proven Systems

Franchisors offer franchisees proven business systems that include operational procedures and marketing strategies. This minimizes the uncertainty involved in starting a new business and increases the likelihood of success, especially for individuals with limited entrepreneurial experience.

Support and Training

Franchisors typically provide comprehensive training and ongoing support, from site selection to the grand opening and beyond. This support system helps franchisees navigate challenges and optimize the performance of their business while enabling them to capitalize on growth opportunities.

Economies of Scale

Franchising benefits from economies of scale. Because they’re purchasing in bulk, franchisors are able to negotiate favorable terms with suppliers and offer access to centralized marketing resources. This enables franchisees to save money and increase their operational efficiency.

Expandability

Franchising offers scalability, allowing entrepreneurs to expand their business footprint by opening multiple franchise locations. This diversifies revenue streams and increases profitability over time.

Franchising Compared to Other Income Streams

In a recent article for Entrepreneur, Franchise Consultant David Busker weighed the pros and cons of franchising against those of other revenue sources. Let’s take a look at how they compare.

Corporate Job

Corporate jobs provide a stable income and career advancement opportunities, along with benefits like medical insurance and paid time off. However, Busker points out in his article that there are four “major pain points” that affect corporate employees:

Limited Autonomy. “It can be difficult to control your destiny (outcomes) in a corporate position,” Busker wrote, “with many factors outside of your control.”

Lack of Flexibility. Very few corporate jobs give you the option of choosing your own work schedule or setting your own hours. As Busker explained, “[Y]our are often working on someone else’s schedule, making it harder to manage your personal life.”

No Personal Fulfillment. Are the benefits and the steady paycheck a fair trade-off for a lack of job joy or passion for what you’re doing? “If your job doesn’t provide fulfillment or you aren’t satisfied selling widgets,” wrote Busker, “it can be difficult to maintain an executive focus.”

Lack of Financial Security. Corporate jobs are unfortunately susceptible to restructuring and/or layoffs. “Corporate positions used to be the safe and secure path to building income and wealth,” Busker wrote. “[H]owever, in the modern economy it becomes risky as you approach middle age and you’re still in middle management.”

Starting an Independent Business

Starting an independent business offers autonomy and flexibility but involves significant risks and uncertainties. Unlike franchising, independent businesses must build brand recognition from scratch and develop their own operational systems and support networks. “Just remember,” wrote Busker, “starting a business from scratch takes a lot of time for things that don’t generate revenue (logo, employee manual, back-office set-up, etc.). If you take the business-from-scratch approach, make sure you are prepared for a long ramp-up period.”

Investing in Stocks or Real Estate

Investing in stocks or real estate provides passive income potential but requires financial capital and market expertise. While these investments offer diversification and liquidity, they may lack the hands-on involvement and control afforded by franchising.

“No business is truly passive,” wrote Busker. “[I]f you want truly passive income, then consider buying stocks and bonds. While there are franchises that are passive, they take significantly more capital (consider a hotel chain). Of course, truly passive franchise models are not within most realistic budgets.”

As for investing in real estate, Busker did note that it is similar to franchising in that it requires a considerable investment upfront. “However, franchising can often have a better return on investment than real estate,” he pointed out. “[Y]our time in many franchise models can be very leveraged, but unlike real estate, you are providing a unique service with higher barriers to entry, typically creating stronger returns on investment. After the business gets off the ground, you’ll typically enjoy high-level oversight and fewer day-to-day operations.”

Is Franchising the Right Revenue Source for You?

While not suitable for everyone, franchising presents a unique combination of brand recognition, built-in customer base, proven systems and corporate support that sets it apart from other revenue streams. By comparing franchising to other revenue streams and considering your individual preferences, your skills and your personal goals, you can make an informed decision about the most suitable path for your entrepreneurial journey.

Pondering your next big career move? Browse through 1851 Franchise’s directory and find the franchise opportunity that’s just right for you!

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