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Low Cost Franchises cover a wide range of industries and services, such as snack shops, pizza shops, sign companies, and cleaning services. Each industry has its own general rules of thumb in terms of income potential. However, it generally happens that the lower the cost, the lower the income potential. Offsetting that is your time.
Franchises require more than the passive attitude of "throw in some money and sit back and get rich." You need to invest your time and energy in addition to your money. You'll probably make more money off a low cost franchise that you actively manage than by putting your money in a totally passive investment. Franchises generally require a larger investment of time and money in the beginning. By the third year, however, you should be on your way to a nice income.
It's probably not a matter of whether it's a cheap franchise or not, but rather a matter of caring about keeping all franchisees happy. An advisory board can indicate a willingness to listen and learn from franchisees. However, if the franchisees on the board are hand-picked by the franchisor, they may do nothing of any consequence.
A well-rounded franchise advisory board should include people who own multiple franchises as well as people that only own a single franchise. The entire spectrum (inclusive of both large and small markets) needs to be represented. The diversity of the board ensures that as many voices are heard as possible, regardless of the cost of the franchise itself.
As you research the franchises, take note of cheap franchise opportunities. Make sure you include all the costs associated with starting a franchise, however. If low start-up costs are evident but the royalty fee is much higher than normal for that industry, you need to be aware.
Create a chart listing the various charges and expenses you'll incur over the first few years to get an idea of the total cost of a business. The cheap franchise opportunities that don't make any profit could end up costing you more in terms of lost opportunity. Whatever money you invest in a cheap franchise is money you can't invest elsewhere. Choose wisely and investigate and understand all costs.
Whether you are buying a low cost franchise or not, you still need to determine that there is a demand for the product or service. Define your potential customers and figure out how and where they live. Do they buy your product or service on an impulse or is it a pre-planned and researched purchase? A low cost franchise like a snack or ice cream store depends heavily on foot traffic for impulse buys. Location is very important to these kinds of businesses. On the other hand, most people don't hire a cleaning service because they happened to walk by an office one day. For those types of businesses, advertising and publicly displaying information on the business is probably the best way to make an impact (people are more likely to research such services before purchasing them).
*Whether or not you find low cost franchise opportunities, figure out how to reach your prospective customers and what messages will reach them.
The low cost franchise opportunities which are experiencing tremendous growth have both disadvantages and advantages. The advantages are obviously that consumers like the product and the name will become even more known as the growth continues (this is a good thing as it fuels the growth in your business). It probably also indicates a sound financial structure. On the other hand, the franchisor organization is probably growing as fast as the individual franchises and that may cause some difficulties. In any fast growing organization, some things get lost. If you are brand new to the small business franchise, you may not get the support you need and may feel overwhelmed by the fast growth expected of you.
|Sheri Ann Richerson|