The pros and cons of investing in a low cost verses a high cost franchise

Let us first define what we mean by low cost and high cost. These need to be put into a range and for simplicity I will call it low medium and high. 

Low is a basic investment cost up to about £20,000. Medium £20,000 – £50,000 and High anything above that. At the highest end you could be investing in a franchise up to £500,000 or even more.

Low Cost Franchises

At the low end up to £20,000 this may often be the total entry cost and everything supplied by the franchisor to get you started will be included. This will not take into consideration working capital which you will need whilst getting the business established in the first few months.

Working capital may simply be the amount you need to live on, in a month by month basis whilst the cash flow from the business starts to grow. However you may also need working capital to fund your sales or purchase ledgers in the development stages. The are many man in a van type opportunities they could be oven cleaning, carpet cleaning or delivery services where the whole package is supplied within the initial franchise fee including a sign written van all the equipment, training etc.

This is a low cost business opportunity sometimes referred to as a job franchise. The franchisor will help with all aspects of the business including guidance with marketing and finding customers. These are great, easy to establish businesses and following your training will quickly get you earning money.

You will be part of a community and a franchisor worth his salt will hold regular information/training sessions for franchisees to learn the latest techniques and meet other franchisees. In recent years there have been a number of internet marketing franchises coming into existence.

These are opportunities based around national websites (with local representation) or mobile phone apps and they help local businesses market themselves and find clients. They are very straightforward to set up and need little or no equipment (other than a laptop or tablet) to operate.

You will need to be interested in selling and be fairly outgoing in nature, but these opportunities often fall into the low end of setup investment so are very popular. You are probably working on your own and not need to employ many if any staff so depending on how you see it that is a bonus.

Marketing is a very big marketplace so the income potential is huge. However it is important to make sure you are you are well suited to this type of business before taking the plunge. Quite often these businesses are setup by franchisees using their own savings or help from family so the need for bank loans or overdrafts are obviated. At the high end of the franchise opportunity marketplace we have parcel courier businesses, Pizza and burger restaurants and fitness clubs to name abut a few.

These businesses will not only require premises to operate from but will also need, fixtures and fittings and specialist equipment and in the case of couriers will normally require more than one large van. You will have to be fully trained in the methods and operational systems as will your staff. Therefore the setup process is going to take much longer.

Medium and High Cost Franchises

Medium and high cost franchises will normally need the help of bank loans and overdrafts so the cost of this will need to be incorporated in the business plan. With approved franchises banks will often lend 70% of the total cost of setting up and these loans will usually come with repayment and interest rates that reflect the approval ratings of the franchisor.

So if you are interested in getting into the restaurant or take away business you will find it much more straightforward when negotiating bank loans providing you have approximately 30% of the total capital requirement. You will be involved in the training and once operational the management of the people in your team and it has to be said this is not everybodys cup of tea. It is reputed the Napoleon said the British were a nation of shopkeepers and there could be some truth in that.

Many people when considering starting their own business often head towards the retail based opportunities. These are great because you get a name (usually well known) literally, above the door and this is great for the ego as all your friends and family will be jealous of your new found status and with hard work and application of the franchisors system you will be in line for fame and fortune. But franchises at the lower end of the investment spectrum still have a very important place in the general economy and although some low cost franchises are merely one man band enterprises they are still work and a good living for the franchisee.

They will be a good asset when time comes to sell and retire or simply move on. Many low cost franchises however can still become multi million pound businesses with the right combination of franchisee and franchisor.

With so many good franchise opportunities on offer today, would be entrepreneurs have plenty to choose from, no matter what their level of investment goals, but one thing is certain at the start of 2016 you pay your money and you takes your choice.

About the writer Jeff Frankling the founder and CEO of DOR-2-DOR the UK leaflet distribution and printing franchise started his career in the franchising industry in 1981 when he was working as a consultant advising clients who wished to establish their businesses as franchises and including helping them in their franchisee recruitment process. In the mid 80s he started to develop a business in the local marketing field based on discount voucher packs which evolved into DOR-2-DOR.

A number of pilot operations were established before the franchise package as it exists today was commenced in 2000. Jeff has been elected three times as a council member at the Direct Marketing Association between 2003 and 2011 and was chairman of the marketing committee for 3 years during this period.

True to his roots Jeff is now also working with his eldest son William developing a discount voucher marketing service called Saverplaces.co.uk which he is planning to commence rolling out across the UK during 2016.

Request more information about Dor-2-Dor here.