If we were all sitting in a conference room today (yeah, you remember those days!) and I asked that everyone to shout out their favorite vacation adventures, I am sure that we would hear a variety of answers – walking the beaches of the Outer Banks, skiing in Vail, playing card games during the family stay-cation, enjoying a perfect summer day in San Diego, scuba diving in Grand Cayman, or camping in New England.
All of these vacation adventures sound amazing. In fact, at this point, just about any getaway sounds like a bunch of fun to me! And, though all of these vacations sound great, they are all VERY different from one another and also have widely varying costs attached to them. So it is with franchises too!
One of the large differentiating factors with franchises is the required investment. Some franchises may require $50,000, while others may require $5,000,000! One is not better than the other. But, just like vacations, you don’t necessarily need to spend more money to have a better experience. In fact, I have seen some amazing franchise opportunities that require relatively lower investments.
How do they do that? Well, it is actually simpler than you think, and it is related to some core decisions about how to operate.
I want to share with you today more details about some characteristics frequently found in lower investment franchises so that you can appreciate them and understand more about what helps them to be successful.
Operate in a non-retail location
When a franchise can be successfully operated in a non-retail storefront, the required investment will be dramatically lower. Try to visualize the difference between setting up a Dunkin franchise location and a staffing company. To succeed, Dunkin needs to invest in a prime retail location and build out a physically attractive space. In comparison, a staffing company can be effectively operated from a home office with minimal capital investment.
Offer “services” not “products”
Most lower investment franchises offer “services” as opposed to physical “products.” This is a significant difference. By minimizing revenue from products, a franchise owner can minimize inventory investment, overhead attached to a warehouse, and product spoilage.
Convert employee costs from fixed to variable
In a business model that has a “retail” location with fixed operating hours, there is a “schedule” for employees, which results in labor costs that become semi-fixed over time, regardless of the number of customers who walk through the door. However, lower investment businesses focus on staffing employees up and down to match customer demand, resulting in more labor efficiency.
Limit overhead burden
The combination of lower-cost location, reduced product stocking, and labor efficiency also has a secondary benefit of reduced overhead burden in the business. All of the primary benefits also create reduced “bureaucracy,” including lower “middle management” costs, reduced utility bills, and countless other savings that increase profitability for the business. In addition, many of these businesses do not require large travel or entertainment budgets and focus on staying lean and efficient.