What is franchise economics?
Since the 1970s, Australians have embraced franchising with open arms. Today, we have the second highest rate of franchising outlets per capita in the world – coming second only to New Zealand!
Franchising has become a central force in our economy. These days, most industries have some kind of franchise system in their midst. Whether it be the construction industry, the food industry, or the fitness industry, almost every type of business has been franchised at some point in time.
So, what is it about franchising that makes it so popular both here in Australia and internationally?
Explaining franchise economics
Franchising can be understood as a business model and marketing system that allows a business owner (the franchisee) to operate under the systems and brand of a larger parent business (the franchisor).
Under a franchise agreement, a franchisee is granted the rights by a franchisor to sell products or services under the franchisor’s existing business format for a specified period of time. The franchisee pays an ongoing fee to the franchisor; and in return, the franchisee receives the rights to use a given trademark, a brand, and/or a system in order to sell products or services.
The reason why franchising works so well is simply because it makes economic sense. Franchising is essentially an exercise in collaboration. It combines the comparative advantages of a parent business’s established brand recognition and economies of scale with the individual drive and skills of its franchisees.
Think of it this way: it could take years or even decades of hard work and marketing dollars for a small gardening business to build up a brand that could compete on a national level. Even after all those years of effort and investment, success still wouldn’t be guaranteed. A Jim’s Mowing franchise owner, on the other hand, starts up their business with the advantage of already being able to compete on a national level. They don’t have to spend any direct marketing dollars on working towards national brand recognition or gaining customer trust because those assets are inherent to their business. As a result, the Jim’s Mowing franchise owner can dedicate more of their time, money, and effort on things that they enjoy doing and things that they’re good at (i.e. servicing customers, building good community and client relationships, etc.).
In economic terms, this is called comparative advantage. Comparative advantage occurs when one party can produce outcomes at a lower cost and a higher efficiency than another party. When applied to businesses, the law of comparative advantage tells us that businesses are more successful when people work together. It’s the idea of ‘working smarter, not harder’. When you allow business owners to focus on what they’re best at and to outsource the inefficient tasks to experts, business owners are able to grow their businesses faster and on a larger scale.
Simply put, franchising makes economic sense because it maximises efficiency. Franchising allows a franchisor to expand their brand on a much larger scale whilst allowing a franchisee to own a business without having to start from scratch. By working together in the spirit of collaboration, both the franchisee and the franchisor flourish.
How do franchise owners get paid?
As a Jim’s Group franchise owner, you have full control of the day-to-day operations of your business. This includes the finances. If you’re a sole trader or a partner, you can pay yourself simply by withdrawing cash from the business. If you’re running your business as a company, then you will need to pay yourself a salary.
In terms of the ways in which franchise owners are able to turn a profit, the most common method would be to collect profits from sales and service transactions. However, should there come a time when you want to part ways with your business, you can also choose to sell your business for a significant capital gain.
Can owning a franchise make you rich?
At Jim’s Group, our franchisees do remarkably well compared to our competitors. As a result of our low startup costs and low overheads, our franchises are some of the most profitable franchise opportunities out there on the market. Most of our franchisees are profitable within their very first year, which is an astounding achievement when you take into account the fact that 20% of small businesses fail within their first year and 60% go bust by their third year. One of our Jim’s Mowing franchise owners, Dan Cahill, went from earning $52,000 a year as a manager at a fast-food joint to turning in $300,000 worth sales in his very first year as a Jim’s Mowing business owner!
Although owning a franchise can certainly make you a lot of money if you put in the work, you should never buy any business purely for monetary reasons. At the end of the day, owning and running a business is a huge commitment, so you have to make sure that it’s something you truly care about. Interestingly enough, at Jim’s Group the franchisees who are the most passionate about their businesses are the ones who end up earning the most. Passion and enthusiasm is contagious – if you approach your business with a good attitude, the customers (and money) will follow.
What franchise can I buy for $10,000?
One of the benefits of owning a mobile business is that it takes minimal time and capital to start up. When you decide to buy a Jim’s Group franchise, all you need to invest in is the rights to your particular region, your equipment, your uniform, and your vehicle.
The upfront costs involved in buying a Jim’s franchise varies depending on a variety of factors. These include things like division, the size of the territory, whether it’s an established business or a new business, and the type of equipment required. A Jims Mowing franchise usually requires a capital investment of somewhere between $20,000 to $50,000. Considering that most of the other popular franchise companies in Australia ask for starting investments of $100,000 and up, we think we have a pretty good deal!
We do understand, however, that starting any business is a significant financial commitment. That’s why we have multiple financing options available for prospective franchisees to explore. In fact, we’ve written up an entire article exploring the types of financial support you can receive as a Jim’s Group franchise owner. We don’t want to see anyone deterred from starting up the business of their dreams, so we’ll always do our very best to help new business owners get their feet on the ground.
If you want to learn more about life as a Jim’s Group franchise owner, get in touch with our team today. Call 131 546 or enquire online to see how we can help you kickstart your business journey.