As you delve into the world of franchising, you will find there is a W-I-D-E variety of investment levels associated with different franchises. I have found in my career that some of the best opportunities are those that have relatively low levels of investment. I want to share some thoughts on key factors in finding great, low investment franchises.
Look for service brands, not retail businesses
As you start to investigate franchise companies, you will typically find that higher investment levels are correlated with retail brands. This is understandable because these brands require a storefront investment, fixtures and furnishings are often more working capital to fund the higher retail rental costs.
Most service brands can be started with significantly less capital. Service based brands are often housed in less expensive office space – commercial or industrial space. In some instances, the business can be started from a home office with minimal startup cost required.
Thus, service brands will often be lower initial investment.
Owner-operator models facilitate lower investment
One of the largest expenses in any business is the labor cost of your employees. The salary that you pay to a manager is one of your largest single expenses, especially during the startup of the business.
If you are looking for a low investment franchise, you should focus on opportunities in which you can serve as the owner operator. In these businesses, you will personally step into the business during its formative stages and will be the driver of the business activity. This will enable you to avoid the cost of a hired manager early on. As the business expands, you will then add to the staff and bring in a manager to handle the tasks that you do not enjoy and for which the manager has better skills.
Focus on Recurring Revenue
One other factor that will enable you to be successful with a lower investment franchise is to identify those franchises where the customer purchases from you on a recurring basis. Think about businesses such as lawn care, pest control, maid service or window cleaning. The beauty of businesses such as these is that once you have developed a customer relationship, that customer is highly likely to purchase from you month after month, year after year. This enables you to build a scalable, profitable franchise without having to constantly replace your customer base. Instead, your marketing dollars on being spent to find INCREMENTAL customers.
Are you in the middle of a franchise investigation and seeking some guidance? Do you want to focus on low investment franchise opportunities? Chris is here to help you!