How to start an online franchise
There's money to be made online, but is the web for you?
The internet was the big technological story of the late 20th century, and its tale still has a very long way to run – although no-one is exactly certain what the implications of that will be.
After a lot of hype, the dotcom bubble burst at the start of this century and some doubted the potential of the internet as a place to do business. But since then the internet has matured and is now a major place of trade for every business sector.
Research from the Internet Media Retail Group shows that in mid-2006 10% of all retail sales were conducted online and web-based consumer spending in the UK was valued at £30bn per year.
This is, of course, set to grow and analysts say there tends to be a 45% increase in online sales every six months.
So, there's money to be made out of the internet, if you pick your investment wisely. But, before you leap at the next attractive offer that comes your way, you need to consider whether it is really for you.
Who is it suited to?
An interest in computers, technology and the internet is essential if you want to make a living in this field. The internet excites a lot of people, but are you really convinced that you want to be involved in such a rapidly evolving area.
You will need to be the type of person who enjoys learning, as there are new products being launched every week which could reshape your business.
However, you don't necessarily need a high level of IT skills to compete in this sector. For many internet franchises, and there is a huge amount of diversity, just basic IT skills will be fine.
“Some of the most successful franchisees I have met don't have any IT experience,” says Mark Lloyd who runs a WSI franchise in Hampshire.
“They are just business people who have, for instance, run restaurants before they came to WSI.”
Lloyd points out that you are running a business and that you will need to be prepared to take on a wide variety of different roles.
“It is like any business where you have to take into account marketing, operations and administration as a part of the day to day running,” he says.
So, even if you don't feel that your web skills will ever be cutting edge you still might be able to find a business model which allows you to play to your strengths.
Some franchisees involve selling and former sales people are often well-suited to the challenges of franchising.
Karen Holmes, who owns a The Best Of franchise in Newbury, previously worked in IT sales.
She says that this has helped her but that she doesn't feel it is essential to her success.
“As long as you can communicate with people, I think you can do it,” she says.
“You could be an accountant and still do this job as the product sells itself really.”
How does it work?
Franchisees purchase the right to trade under the franchisor's name and are given support and training to increase their chances of success.
A good franchise will want you to succeed and it should be in their interest that you do so. After all, they will be making money out of this venture, as well as you.
Once you have bought the franchise and completed the training you will be assigned an ‘area' where you will have the right to trade.
This is sometimes an ‘exclusive territory' but not always, so check with the individual franchisor before you purchase.
As you may never have run your own business before it will be necessary for you to learn about things such as tax, employment law and health and safety before you begin.
The course might also include some IT training, although all franchises differ in what they include in their schemes.
WSI franchisees are given a week's training at the company HQ in Toronto.
This covers all the aspects of running the business, although there is a support service for franchises once they have began.
The Best Of provides one week of training followed by weekly conference calls from the managing director Nigel Botterill.
The most important thing is to make sure you know exactly what you are signing up for before you commit to it. Once you are fully trained and have been assigned an area, you will have to pay for some start-up costs to get the business off the ground.
This could include a whole range of different things from shop fitting to internet domain. However, costs for all internet franchises differ, as they involve a very diverse type of businesses.
Running a franchise is very different from running your own business, as you will be given a model of how the business should work and then carry out the tasks involved.
It is not really for ‘original thinkers', but more for people who are looking for a tried and tested formula and are prepared to work hard to make sure it succeeds.
We are focusing on three different franchises here: The Best Of, iSold It and WSI.
However, these are by no means the only internet franchises available so search around if they don't take your fancy.
The Best Of The Best Of are community websites, which make money through the sale of cheap advertising to local businesses.
All of the web sites are linked to a main internet portal and the franchisor ensures high web optimisation for all the franchisees sites.
This means that, for instance, a butcher's shop in Chorley can enjoy a very high Google rank for a very low cost. iSold it One of the latest eBay businesses to come to the UK is iSold It, which purchase goods from people which they then auction online. UK franchisees are opening stores in the UK, with the first one planned to open up in September 2006.
It is a already a big success in the United States where customers enjoy the ease with which they can sell unwanted items.
WSI With a WSI franchise you become an ‘IT consultant' and will be helping other companies to design, launch and manage their websites.
You don't have to be an IT expert to run one as WSI will provide full training with their package. WSI say that their IT consultants come from a wide range of industry backgrounds.
There are already numerous WSI franchisees in the UK but the company is still expanding.
How much does it cost?
Every franchise is different and so costs vary a great deal between them.
The Best Of Its franchises' costs depend on the population density of the area and range from £8,999 in quieter areas to £27,999 for the London Boroughs.
The initial fee pays for the web domain, basic training, support and access to the network.
There are few other costs to the franchise and most franchisees tend to work from home.
After the third month of operation franchisees pay a fee of £300 to the franchisor each month, which rises to £500 when they have over 200 advertisers.
The licence fee is £300 for 0-199 advertisers (the payment is not due until month 3 to allow time to become established).
This increases to £500 for 200 – 499 advertisers, which covers all sites currently in operation. The Best Of also provide weekly conference calls on various subjects that franchisees should find useful.
iSold It Its initial franchise fee, which covers training, support and the right to trade under the company's names in an exclusive territory costs £19,995.
Franchisees will have to arrange for a store to be made to the requirements of the franchisor and this ‘store in a box' costs £40,000.
It is then estimated that working capital for the project, to cover rent, wages and other overheads, will be around £20,000.
This brings overall costs for the project to just under £80,000. WSI WSI says that total start-up costs are £36,800, and this covers all training and the right to trade under the company's name. However, as you work from home start-up costs should be kept to a minimum.
Franchisees pay the franchisor 10% of what they earn each year.
How much can I earn?
The Best Of work off the idea that each site will have about 1,500 advertisers and each of these will pay between £10-£30 per month each.
This would bring in over £15,000 a month in turnover and payment to the franchisor would be fixed at £500 a month.
However, in some of the smaller areas it might be harder to get that many advertisers.
Karen Holmes, in Newbury, thinks that the 1,500 figure might be out of her grasp as her area is not that populous.
After eight months of trading she has just less than 200 advertisers which nets her just over £2,000 per month.
However, until she reaches the 200 advertiser mark, she only has to pay £300 each month.
Mark Lloyd, who owns a WSI franchise, started trading in June 2004 and last year produced a turnover of £80,000.
He says he is aiming for he and his partner to both be earning £100,000 after five years of trading, although he feels that the only way to make serious money is through expansion.
Tips for success
1. Copy the success of others
Karen Holmes who runs a The Best Of franchise says that the best thing she ever did was learning the techniques of the most successful franchisee.
2. Don't be afraid to invest in others
Many business owners feel that they can do it all themselves but none ever can. You have to be able to delegate responsibilities or you will get drowned in unfinished tasks. It can be nerve-racking when you first yield responsibility to someone else but one you get used to it is the most liberating thing you can do.
3. Do what you enjoy
This is your business, after all! Therefore, you should work to your strengths and get others to do the things you dislike doing. If you can find someone who has totally different abilities to you then you could be on to a winning partnership.
4. Shop around for the best deal
There are many franchises out there and a shortage of good people who are up to the job of taking one on, therefore if they want you then you are a rarity. Make sure you want to do it before you commit.
People are always more likely to deal with someone they know than with a stranger so it pays to get your face known. There are many networking events to attend and groups to join. Your local Chamber of Commerce could be a good first step. It will also get you used to talking about your business and practice selling it.