Coming off a recent liquidation of a franchise, I have some insight into the pros and cons of a franchise business. When I consider the likelihood of netting a reasonable income, the likelihood of a strategic and nimble franchisor, and the limited options when your business is in trouble, I think the downsides outweigh the upsides of getting into a franchise business.
I consider the biggest issue with franchise business is that the franchisor’s priority is maximizing your revenue and not your profitability. This manifests itself in many ways. For example, I might be forced to use only franchise approved vendors for products, supplies, equipment, marketing, social media, etc… In every aspect, I observed significant markups for all these services compared to sourcing my own vendors. I am also aware that each of these vendors, in turn, provide cash to the franchisor for locking in the franchisees to that vendor. Another way that franchisors are not goal aligned to the franchisee is the enforcement of promotional programs. The promotions are targeting a particular audience and do not necessarily address the customer base in my local market. The promotions often involve giving customers a very low price in the hopes that they will stay on for more sales at the full price. The problem with this approach is that customers take the promotions and move on to a competitors offering promotions to new customers. So, customers are conditioned to move to the next best deal every few months. In the meantime, the franchisor gets their cut of the revenue which leads to negative profitability because the promotion price is razor thin margins. Although not all franchises act against the best interest of the franchisee, my observation is that a majority of franchisors operate in such ways.
