Part II in a series about the pros and cons of franchising. Read Part Ion relying on the experience of the franchiser and its operating system.
Among the benefits touted by franchisers about their business model are advertising and buying efficiencies and continuing support. But every story has two sides. That's why those considering a franchise purchase should talk to current and former franchisees before signing on the dotted line. StartupJournal.com spoke to four franchisees and ex-franchisees now running their own shows to hear their views on these selling points.
They are: Randy Drake, 39, a Elk Rapids, Mich., plumber who bought a Mr. Rooter franchise in May; Terry Schuler, 40, a former Mr. Rooter franchisee, now an independent plumber in South Elgin, Ill.; Cynthia Barnes, 46, a Houston accountant who owns two Baskin-Robbins ice-cream stores; and Boyd Harris, 42, a former Baskin-Robbins franchisee in Laredo, Texas, who runs his own ice-cream stores.
Here's what they said, and the bottom line for franchisees. Spokesmen for Mr. Rooter and Baskin-Robbins declined to comment on their remarks.
1. On advertising efficiencies:
Mr. Drake: "When I opened R. Drake Plumbing in 1996, I spent the first two weeks walking door to door in the Elk Rapids downtown, distributing my cards to local business owners. It helped that my mother is so friendly, and everyone knew me as Marcia's son.
"As a franchisee, I pay 2% of my monthly revenues into the Mr. Rooter ad fund. A couple of times, I've been in a customer's house when a Mr. Rooter commercial was on her TV. I have a closet stuffed full of Mr. Rooter pens, jar grippers, magnets and coupons to give away. People love those things. And 80% of my new calls are coming from a Yellow Pages ad Mr. Rooter helped me place. They even got me a better rate than what I'd been paying on my own."
Mr. Schuler: "With everybody paying 2% into an ad fund, we should have gotten something better than we did. When I complained that I needed more advertising, the franchiser said it was my responsibility. I spent $100,000 on my own, and it never paid off."
Ms. Barnes: "I always want to see more advertising and I would love to see TV ads. Right now I'm working with the Baskin-Robbins person in charge of advertising for our Texas area on ways to penetrate our local market. We do receive posters and other materials for special promotions. Some work, some don't, but you've got to keep trying new ideas."
Mr. Harris: "When a franchisee, I paid 5% of my revenues into the Baskin-Robbins ad fund. Over all those years, I can recall seeing only three TV ads. Baskin-Robbins required us to hang posters in store windows for programs we knew wouldn't work.
"I'm now spending about 6% of my total revenue on local advertising and special events to promote my three KaleidoScoops stores, and it's worth it. My sales are one-and-half times higher than when I was a franchisee, and, because I'm not paying Baskin-Robbins a 5.9% royalty, I'm earning more myself. "
- Bottom line: Before buying a franchise, ask existing franchisees: Do you feel you're getting your money's worth from your ad-fund contributions?
2. On buying efficiencies:
Mr. Drake: "Before, every time I bought three boxes of the red shoe covers [that plumbers wear to keep customers' carpets clean], it cost me $75. Buying them with Mr. Rooter costs me $48. And that's just one example of the stuff I save money on."
Mr. Schuler: "I felt Mr. Rooter's buying power was substandard. They had their people you bought from, but we were getting raked over the coals. I found companies where I could save 30% to 40% off the cost of many products."
Ms. Barnes: "I buy ice cream, and paper goods from the providers Baskin-Robbins recommends. But I'm always looking for lower prices and will let corporate know if I find any. There are some things, like dish detergent, I buy at Wal-Mart instead of paying for delivery [from a company supplier]."
Mr. Harris: "When I bought paper goods, dry goods and cones through Baskin-Robbins, I think I got a fair deal. Since they negotiated on a national basis, franchisees got a good supplier rate. But they made that up in other ways. They'd mark up the price of equipment they made you buy, like a new [point of sale] system."
- Bottom line: Supplies can be less costly for franchisees because franchisers can guarantee large orders and they negotiate low prices for most products their franchisees use. But co-op programs and professional and trade organizations also offer buying efficiencies. Ask existing franchisees if they think their franchiser has taken advantage of them with required purchases.
3. On continuing support:
Mr. Drake: "The Mr. Rooter support system has been fantastic. The franchise-service manager came back to our office in September to help move our back-office functions to the franchise system's proprietary software, and the corporate public-relations officer helped us with press releases for the local newspaper."
Mr. Schuler: "The support Mr. Rooter promised us never materialized. It was a lot of empty promises. Of course, they still wanted their money."
Ms. Barnes: "Every time I pick up the telephone to call my representative and say 'I need you,' he comes right back to me with answers."
Mr. Harris: "Even if they wanted to, Baskin-Robbins didn't have the operational staff to come out and help you. "
[A spokeswoman for Baskin-Robbins says the company now has 36 field-service managers to assist franchisees across the country.]
- Bottom line: Joining a franchise with a strong support system can help you through the day-to-day challenges of running a business. Ask existing franchisees to rate the support their franchiser provides.