Franchising vs Independent Business (2024)

FAQs

Franchising vs Independent Business? ›

If you're comfortable taking direction and working within a set structure, a franchise might be a good fit. Conversely, if you prefer autonomy, an independent business will give you the freedom to make all the decisions without needing to answer to a franchisor.

Franchising offers the advantage of an established brand, support, and higher success rates, while independent businesses provide flexibility, unlimited growth potential, and higher profit margins.

If you're motivated by a desire for independence or to create something unique, starting your own business might be the better fit. Conversely, if you prioritize the security of a proven system and the support of a larger network, a franchise could be your path to success.

The main difference between franchising and buying an existing business is the level of control you'll have over your business. A franchise is a business model where one business owner (the franchisor) sells the rights to their business logo, name, and model to an independent entrepreneur (the franchisee).

Franchising, while offering support, can come with limitations on creativity and independence. There are rules to follow and franchise fees to pay. You are part of a larger system and sometimes, that can mean less room for personal expression. Starting your own business offers total freedom but with higher risks.

Franchises offer a proven blueprint for success, brand recognition, and ongoing support, while independent businesses provide creative freedom, unlimited potential, and personal fulfillment. Assess your goals, risk tolerance, financial capabilities, and desired level of support before making your choice.

From the level of experience of the buyer and support they'll get to the type of brand, it's reputation, and the conditions of the market – meaning, the stats will vary. Studies in the market have estimated that failure rates for franchises can be as high as 50%, while others studies show lower rates around 20%.

In addition to having the support of a corporate marketing team, franchisees often benefit from having an immediately recognizable brand and the loyalty that goes with it. Franchise branding means prospective business owners don't have to figure out a logo, brand colors, a brand voice and tone, or any of those details.

Owning a franchise can be a rewarding venture, offering a balance between entrepreneurial independence and the support of an established brand. While there are challenges, the benefits, especially for those new to business ownership, can be significant.

The primary benefit of a franchise is the lower risk associated with established brands and the support that comes from the franchisor. For first-time entrepreneurs or those looking to invest with a bit more security, franchising can be an attractive option.

Why are franchises typically more successful than independent small businesses? ›

Brand recognition: One of the most significant benefits of franchising is that the franchisee can leverage the brand recognition of an established and well-known brand. This can help the franchisee to attract customers more easily than an independent business would.

A franchise is a joint venture between a franchisor and a franchisee. The franchisor is the original business. It sells the right to use its name and idea. The franchisee buys this right to sell the franchisor's goods or services under an existing business model and trademark.

People purchase a franchise because the model works. It offers careful entrepreneurs a stable, tested model for running a successful business. It also requires them to operate on someone else's business model.

This fee can be any amount above $500 (it must be above $500 to trigger the “payment” element of the FTC Rule). Every franchisor charges a different fee based on their particular business and the industry they're in. Across all franchises, the average initial fee hovers around $25,000 – $50,000.

If your business operates in a new and hot industry or segment that is not crowded in the franchise space, then franchise sales and growth will, most likely, be easier and less expensive than more traditional businesses that are already well-represented in the franchise industry.

Franchises operate under a predetermined business model that has already brought success, while independent businesses make adjustments and decisions to their business model as they go.

According to Franchise Business Review, in 2021, franchise businesses had a success rate of 91%, compared to only 29% for independent small businesses. This is a significant difference and highlights the benefits of franchising as a business model.

As the International Franchise Association (the trade association for the franchise industry) notes, “Owning a franchise allows you to go into business for yourself, but not by yourself.” As a franchisee, your small business will enjoy instant brand recognition and a built-in customer base.

One of the most significant benefits of starting a franchise business is buying into an established brand with a proven track record. This means that you're not starting from scratch with an unknown name and reputation. Customers already know and trust the brand, making attracting and retaining customers easier.

A franchise increases your chances of business success because you are associating with proven products and methods. Franchises may offer consumers the attraction of a certain level of quality and consistency because it is mandated by the franchise agreement.

Do franchises have a higher success rate? ›

It might surprise you, but new franchises only fail 10% of the time, whereas independent businesses have a failure rate as high as 60%. The upper hand for franchising comes from established brand recognition and superior customer service.

However, buying a franchise may offer a more predictable business model with lower risks associated with brand recognition and support from the franchisor. Starting your own business carries the risk of market acceptance, competition, and the challenges of building a brand from scratch.