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How to Cut Down on Costs When Opening a Franchise Business

In the franchise industry, there are certain areas you can spend a little less cash—and certain areas you should not.

Whether you’re the franchisor or the franchisee, there’s no question that opening a business requires a significant investment, including infrastructure, employees, rent and legal fees. However, today there are also ways to cut down on costs when opening a franchise. And you don’t always have to think outside the box to do so. 

Where to Cut Costs

When budgeting costs, there are a few areas of business that can be less costly today. For example, Christian Saab, founder and CEO of CPG, noted that he has been able to cut costs by using AI software tools and virtual assistants where he can. 

“You'd be amazed by how much you can use a virtual model for,” he said. “I've been using virtual assistants and software tools to achieve more day in and day out. For example, these systems can be used for non-critical elements such as admin. This makes my model cheaper, which makes costs for our franchisees cheaper in turn.” 

Notably, an analysis by Boston Consulting Group found that AI can reduce conversion costs by up to 20%, with about 70% of the cost reduction resulting from higher workforce productivity. 

Meanwhile, some of the biggest costs when franchising come from rent and employees, Saab noted. Home-based models that embrace a remote environment, such as CPG, keep costs low for franchisees. 

“Depending on where you are, rent could be an instant $10,000 a month—easily,” he said. “We’ve taken that away right off the bat. By eliminating that, and not making a brick-and-mortar location a requirement, that has made our franchises a lot cheaper.” 

Today, there are plenty of brands that are entirely on the go. Franchises that don’t require a physical location can be easy to operate, affordable to buy and provide more flexibility for franchise owners looking to increase their quality of life.

Where Not to Cut Costs 

On the other hand, there are some areas of business that franchise owners should allocate more budget to. Saab says that one of those things is marketing. In fact, a study from the Harvard Business Review found that companies that have bounced back the strongest from recessions usually did not cut their marketing spend and even increased it in many cases. However, they changed what they were spending their marketing budget on and when to reflect the new context in which they operated. 

Saab added that back office support operations are another area not to cut down on costs. 

“We spend a lot of time making sure we have the right way of delivering our standard operating procedures,” he said. “Get the tools that you need to get the job done.” 

He added that hiring in the head office is another place to spend money on. 

“If franchisees need support, hiring employees to your head office to do that is not something I would cut costs on. I would also recommend not cutting costs on your head office team. Pay your people well so that you can continue to grow your business.”