Free Franchises – Do They Exist?

13/09/2018 18:00 | Start a business

Free franchises

 

Have you ever heard of a free franchise? Has the thought of a free franchise opportunity captured your imagination? Does such an opportunity even exist, or is it merely a marketing myth? Here, we take a look at whether free franchises are a real phenomenon, or a cruel trick played by manipulative franchises.

There’s no such thing as a free franchise

Generally, the answer as to whether there is such a thing as a free franchise is “no.” There is no such thing as a free franchise. Franchising is a business model that’s designed to be beneficial for both the franchisor and franchisee. If the franchisor doesn’t charge the franchisee for the privilege of using their name and brand, they're not going to make any money, and there's little reason why they should want to invest their time and resources in a business model that's based on losses.

It's important to remember that franchisors are offering both a product and a service when they sign up franchisees. They are selling franchisees the rights to use their brand – its value will be dictated by its reach and the extent to which consumers are aware of the brand – and they are providing an entire support system and all the services associated with this.

If you’re offered a free franchise, it’s a good idea to approach the proposition with extreme caution. It’s very unusual that you get something for nothing in the business world and if you’re being offered a free franchise, there’s a good chance that everything’s not as it seems.

Except in certain special circumstances

That being said, there are a set of very specific circumstances in which you may find yourself on the receiving end of a legitimate free franchise offer. These occasions occur very rarely, and it should be readily apparent why the franchisor is offering such an opportunity. In the vast majority of cases, the offer will be made for publicity reasons, as a gesture of goodwill, or as a part of a corporate social responsibility programme.

Typically, the legitimate offer of a free franchise occurs for one of three reasons. First, a franchisor will offer up a certain number of free franchises to individuals who have the talent and ability to run a franchise but are unlikely to be in the position to ever afford one. Second, granting substantial discounts or free franchises to military veterans is a popular move in the US. It demonstrates that the franchise is patriotic and genuinely American, while also rewarding those who sacrificed for their country.

Finally, free franchises can also be won in competitions. This highly dubious practice is only used by franchises that care little for their brand reputation. The outcome is an absolute lottery and could result in a franchise being granted to someone who is not fit to run a business, potentially damaging other franchisees and the entire business' reputation in the process.

To demonstrate that free franchises are the exception rather than the rule, we thought it would be a good idea to take a look at three instances in which they’ve been offered in the past.

7-Eleven offer 200 free franchises

In 2015, the US mega-chain 7-Eleven agreed to sign 200 free franchise agreements as part of their Zero Franchising Fee Initiative. The programme was designed to help out budding entrepreneurs who may not have been able to afford it otherwise. It gave them an opportunity to build the business without certain financial pressures and establish a strong and steady customer base without having to pay the up-front fee.

However, it's important to consider the fact that franchisees still had to pay a monthly royalty fee and were subject to all other financial commitments. It's also worth noting that this offer was only applicable to specific locations in the US. These locations happened to be those that were underperforming when compared to the national average.

Dr Group offer 285 free franchises

In Australia, the Dr Group offered up 285 free franchises in the IT support industry. The head of the Dr Group, David Raffen, said this move was intended to help those with aspirations beyond their financial means. All that was required of franchisees was the ability to commit to 35 hours of work a week and relevant work experience.

However, despite these franchises being unburdened by an initial franchise fee, those who took Mr Raffen up on his offer would need to cover nearly $5000 of uniform, branding, and legal costs and then pay a monthly royalty fee of 15% - double the typical rate charged by franchises. While this offer was made in 2013, Mr Raffen had also attempted such a move in 2007. It met with limited success.

ActionCOACH give veterans franchise opportunities

In 2011, a leading business coaching franchise, ActionCOACH, awarded free franchises worth an estimated $7.6 million to military veterans in the US. Jodie Shaw, ActionCOACH CEO for the US, said that this offer was a way of “honouring and showing gratitude to all veterans for the sacrifices they and their families have made for their country.”

However, all applicants needed executive level business experience and significant personal net worth. Though this offer was made in 2011, there is no information as to how many military veterans were accepted into the free franchise programme.

If it’s free, best to avoid it

In business, nothing is ever given for free. There’s either a hidden catch or the organisation making the donation benefits in some way. Consequently, it’s a good idea to avoid free franchise offers as much as possible. If you can’t help but look into the offer, make sure you do a substantial amount of research and understand exactly what you’re getting yourself in to.

While we would like to say that there is no such thing as a free franchise, we have to qualify the statement slightly. Generally, there is no such thing as a free franchise, though some franchisors make such an offer on extremely rare occasions. Even then, they're probably not truly free, and you're likely to end up covering the costs further down the line.

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