How Much Should a Franchisor Invest in Outsourced Services?

Many franchisors outsource certain services, and one of the most commonly mentioned is franchise sales. For some franchisors, outsourcing this aspect of the business can speed up growth while freeing up time for the franchisor to be even more focused on the success of franchisees.

Regardless of a franchisor’s previous business experience, franchising brings new demands and an entire network of individuals who will need varying types and amounts of support. In cases like this, it is often seen as a logical step for young franchises to outsource certain job functions. If the cost of a full-time employee cannot be justified by the amount of work needed, outsourcing makes more sense. Eventually, once the franchise has grown enough, that work can be brought inward.

“Before they have royalty money coming in, franchisors should outsource wherever possible,” said Corey Elias, franchise broker and founder of Franchise Captain.

As the franchise is able to build up its network of franchisees and increase the revenue it receives from franchise program fees and royalties, it should be able to bring efforts like marketing and real estate development in-house.

Further even, some would argue that the entire concept of franchising hinges on the idea of outsourcing services. The original franchisor cannot manage a large network of locations on their own, so they outsource that time, energy and money to individual franchisees. 

Eddy Goldberg explained in a Franchising.com piece, “Someone comes up with a great concept and essentially outsources its growth to franchisees so corporate can focus on its core task of system development.”

Like many things in entrepreneurship, there is no single answer to exactly how a person or business should go about things. “All of these choices depend on your situation, the needs that you have, and the things you excel at,” Sean Falk, a multi-unit franchisee, told Goldberg.

Instead of analyzing the specific costs of various outsourcing efforts, the franchisor should focus on viewing outsourcing as an investment. How much is a reasonable, affordable cost at any given time? The intent is to decrease costs, not maintain or increase them. What gap will outsourcing fill, and how will it support the franchise in growth down the road?

"The important thing to remember is to take on the responsibility for the things you do best. Outsource the things that are time-consuming or a challenge for you, so that you can focus on strategy and growth,” Falk said.