Franchising – an odd business model?

by Kay, 6 November 2012

I understand the point of using a big brand name to help drive visitors to your business premises. Say you buy a franchise from a major burger chain, then the cost of the franchise should cover your outlet fit-out, and tried and tested recipes and methods of making the business work for you. The well-known brand name of the business will also drive customers to your restaurant because they already know the brand and know what to expect.

But I’m not so sure that this business model can work in every case, and in particular how it can work online. I received an email today (for something I’m signed up for, so it wasn’t a spam). Basically they are offering a franchise that allows you to leverage the size of their email list (nearly half a million subscribers) and their high Google PageRanks. It sounds quite good, yes? Hmm. Let’s look a bit closer.

You get exclusive rights in your chosen sales patch – that costs “from $12,500”.

What do you get for your money? A subdomain (which may be based on either a specific territory or else a specific non-territorial theme) which is set up as a portal on their website, with a ready-made set of templates which you can use to add and organise content. You get access to their email list to promote your subdomain, and you can keep all of the advertising revenue you make from your promotional efforts.

This leaves me with a lot of questions.

• Is their email list opt-in or opt-out?
• How often is it cleaned to remove obsolete sign-ups?
• What’s the open rate?
• How many people are likely to unsubscribe when they start getting bombarded with various promotions from around the world?
• What’s the demographics of the recipients? I mean, if I buy the exclusive rights to have Timbuktu as my sales territory, then how many people on the list have any interest at all in Timbuktu?
• What happens if the franchisees for a territorial and a non-geographic subdomain want to cover the same ground? For example, the person who runs the wombat breeding subdomain wants to feature something about wombat breeding in Timbuktu, but so do I – who gets the exclusivity?
• How long does the agreement last for?
• What performance obligations am I, the franchisee, liable for? Can they boot me off for not meeting them?
• Who owns the content and copyright during and at the end of the agreement?
• What happens if they lose their domain or even go bust?

I can see how this is a good way for the company concerned to trouser a few $12,500s, but I can’t really see how it could be a good deal for any purchaser. If I had $12,500+ to spend, I would prefer to create my own site for my chosen sales territory. That would cost me, say, $100 at most. That still leaves me with $12k+ to spend on website development, marketing, content and anything else required to make the new venture a success.

I don’t doubt that there will be many other people reading that email and thinking how this could be the answer to help them make their dreams come true. It’s a tough life being a cynical old sod like me, because I miss out on the joys and anticipation when I read something that yells, “It sounds too good to be true!” at me.

Do any of you (presumably someone does read this blog) have any experiences of franchising? What do you think of the offer, and what questions would you be asking? Does it sound like a good deal to you?

I’m out.