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For some people it’s the dream of a lifetime to be part of the beauty industry.
The hype, the celebrities and glamour make it very attractive to anyone with a creative streak and it’s an industry that survives through good times and bad. Working in the industry has many benefits; providing opportunities for a flexible and rewarding life for anyone with an artistic background or with a strong interest in creativity. Makeup, hair, nails and skincare are all areas open to those with imagination and talent. There are so many avenues to explore that you are never limited with how far you want to go.
For those who decide they want to run their own business within the industry the initial start-up process can be daunting, even with extensive previous experience. The risks associated with starting a new business are high, so for some, franchising provides an attractive option to bypass the initial start-up phase; the business will already have a proven track record and established operating procedures that have been shown to work.
Franchising In The Beauty Sector
Franchising is very popular in the beauty sector and for a number of good reasons.
Beauty and skincare is very personal and consumers like to build trust in a brand before adopting it into their daily routine. This is a process that takes time and requires that a business has some proven record of accomplishment for integrity and reputation.
For established business owners it’s a format that can make a lot of sense too.
For those looking to expand without substantial capital outlay, it can be an alternative option to company-owned expansion. Many MAC Cosmetics stores are franchises. They have over a thousand franchised shops apart from their own independent stores.
We took a look at some of the advantages and pitfalls for the franchisee and franchisor.
What Is Franchising?
A franchise is a legal agreement between two parties: the franchisor and the franchisee. The franchisor grants the franchisee the right to use its trade name and/or trademark its logo, name, products and services to a third party – the franchisee. The franchisee typically pays a one-time fee plus a percentage of sales revenue as a royalty.
The franchisee acquires an established business that they can now run independently.
The franchisee pays a percentage of gross sales to the franchisor.
It’s important to thoroughly research a franchise you are interested in to ensure there is a good fit between the business model and your financial and personal expectations.
Benefits For Franchisees
Franchising works to the benefit of both parties, but for franchisees there are some significant benefits not enjoyed by their non-franchisee competitors.
Most significantly, the franchisee has the security of knowing that they’ve bought the rights to a business that is already recognised and successful.
Franchisees also benefit from existing brand awareness and the existing business practices, which can save a lot of time and effort from trying to build it all from scratch. In addition, there is a lot of time, money and effort saved on things like logo design, trademark design, copyrights, patents, marketing materials and advertising.
The franchisee also has the security of knowing that the franchisor will be available with ongoing support.
Support from the franchisor can come in several forms, outlined in the contract, including pre-opening support such as advice on site selection, financing and training along with ongoing support such as national and regional advertising, ongoing training and management support.
Consistent Customer Experience
The franchisee is required to maintain the business model according to the franchisor’s requirements; things like décor, advertising product range must follow the franchisor’s business model so that the customer experience is consistent across all locations.
Costs to buy a franchise can vary greatly; anything from a few thousand euros to tens or even, in a few cases, hundreds of thousands of euros plus. Price is generally determined by the brand profile, costs of start-up equipment and stock. If premises is required there will be leasing agreements and associated legal costs.
Franchisors who have built a strong reputation in the industry and a solid brand awareness are usually in high demand by franchisees who are looking to minimise risk and ensure the greatest chance of success.
Franchisees should be aware that they must follow the contract and operating agreements. They may be running their own business but the franchisor can terminate the agreement if the franchisee fails to follow procedures or acts in a way that is negatively affecting the business. Equally, if the franchisor makes decisions that negatively affect the business this will have an impact on all the franchisees.
What’s In It For The Franchisor?
Sometimes a business can be doing so well they might consider franchising as a way to expand. Franchising as a growth vehicle has some definite advantages.
Business owners generally turn to franchising for four different reasons: capital, motivated management, rapid growth and lower risk. The franchisor can gain rapid business expansion and earnings with a minimum capital outlay.
The franchisee provides the capital required to open and operate a unit, thereby allowing growth using the resources of others. So for a business looking to expand rapidly, access to capital is not an issue when it comes to growth.
Franchisees are highly motivated-because they’ve put up their own money. And, because you’re compensated based on overall sales (plus royalties) rather than bottom line performance, there should be fewer problems in managing growth.
Each new franchisee adds leverage to the company for future negotiations on site selection, lease negotiations, buying power and other start-up activities.
These factors combine together to offer another significant benefit; reduced risk. It’s possible to scale-up a business to any size with limited investment and without using your own capital.
Independent studies have shown that franchisee-operated sites in similar locations generally perform better than their company-owned counterparts.
It’s easy to see why.
Franchisees are highly motivated. They take pride in their ownership and run a tighter ship than if the business were not their own.
Franchisors generally stay with the company – long term, and build up a depth and range of knowledge that is rarely possibly for someone who simply works for the company.
Of course, there are downsides. The franchisor only gets a percentage of the profits, there is the risk of choosing an unsuitable franchisee who does not live up to expectations, and the process of terminating unsuitable franchisees can be slow. However, if the franchisee is carefully chosen and lives up to the contract and the operations manual then this need not be a problem.