FRANCHISE VS.INDEPENDENT

By Tony Morrison

Although this presentation has been specifically designedfor real estate agents looking to set up their own real estate business to help them understand the positives and negativesof joining a franchise group or going independent many of the thoughts and ideas can be transferred to franchises in differentindustries. Although currently working for a franchise group I have also worked as an independent so I feel I am able to give a rounded perspective on the subject.

WHO IS THIS PRESENTATION FOR?

Tony MorrisonCEO Harcourts Tasmania

DEFINITION OF A FRANCHISE

• An arrangement where one party (the franchisor) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a percentage of sales revenue as royalty as well as sometimes an initial up front fee and in return gains some or all of the following, (1) immediate name recognition, (2) tried and tested products, (3) standard building design and décor, (4) detailed techniques in running and promoting the business, (5) training of employees, and (6) ongoing help in promoting and upgrading of products. The franchisor gains rapid expansion of business and earnings at minimum capital outlay.

The argument for going independent

STARTING YOUR OWN OFFICE

MORE FLEXIBILITY

As an independent you definitely have more flexibility with branding, marketing, pricing etc.;

A WEAK BRAND CAN BE DETRIMENTAL

All the benefits that an established brand brings obviously disappear if the brand is not strong

FRANCHISING = LOSS OF SOME FREEDOMS

Franchises have brand standards and corporate guidelines which can very be helpful but can also be restricting.

CHANGE CAN HAPPEN QUICKER

As an independent you can come up with an idea, a new marketing strategy, a brand or colourchange and just run with it instead of having to go through a series of hoops and approvals from the corporate team which justifiably have to protect the integrity of the brand.

SUITS THOSE WHO LIKE TO BE AN INDIVIDUAL

In an effort to support consistency and quality of brand in a Franchise individualism can sometimes be stifled

ONE BAD APPLE CAN REFLECT ON ALL FRANCHISEES

As an independent you have total control over your integrity and service level whereasin a franchise group poor performing sales people or offices in your group can havea negative impact on your business.

EASIER TO APPEAL TO A NICHE MARKET

Franchises need to have more generic appeal to suit different locations and demographicsIndependents can focus on a single product/price/style strategy .

EASIER TO CREATE THE FEELING OF BEING FAMILY OWNED

Australians traditionally like working with people from their local area as we like the personal touch of family owned businesses and Independents create more of a perception of being family owned.(even though many franchises are also family/locally owned).

FRANCHISES REQUIRE A COMMITMENT OF TIME (USUALLY 5 YEARS)

MARKET PERCEPTION

Independent agencies often market themselves successfully as being a boutique Agency of a higher class. In reality this varies from agency to agency.

THE BENEFIT OF A WELL KNOWN LOCAL NAME

In smaller rural/regional areas where everybody knows everyone having the name ofyour business based on a local identity may restrict opportunities to sell the business oneday but it will know doubt help build relationships with the community in the meantime.

FRANCHISES BRING POSSIBLE RESTRICTIONS

Most franchises will place restrictions on the territory you can sell in or the sector you can sell in (e.g. Residential, Commercial, Rural etc.)

LEVELING OF THE PLAYING FIELD

Online listings via the web has leveled the playing field as any business on the web can nowbecome visible enough to sell houses if their search engine optimization is good enough.

PERSONAL ATTENTION

Independents can and usually do say, that due to their size, structure and flexibility that theycan offer more attention and a more personal experience. In reality this has nothing to do with the business structure but has everything to do with the person running the business.

KEEPS ALL THE MONEY WITHIN YOUR COMMUNITY

Apart from franchise fees possibly going interstate to the head office franchises usuallyhave national agreements with a lot of service suppliers which possibly don’t help your Local community.

FRANCHISE FEES ARE EXPENSIVE

Franchise fees vary from 5 to 8% of gross income. Plus there are also sometimes monthlySystem/technology fees and maybe contributions to marketing which can be up to 2% of GI.

TOTAL SAY ON WHO YOU SELL YOUR BUSINESS TO

Franchises will want to protect their brand by vetting potential purchasers of your business

The argument for joining a franchise

STARTING YOUR OWN OFFICE

BRAND RECOGNITION

Brand recognition is a huge part of marketing success. If a company has been around for a long time, their ads are subliminally ingrained into the collective consciousness of the populace.

STRENGTH OF BRAND FROM DAY 1

The strength of the brand allows you to trade off other people’s hard work. A strong brand can help you win business as you start with an established presence in the market from day 1.

WEAKNESSES OF BEING AN INDEPENDENT?

Unless you are extremely well known in the area starting an independent agency from scratch can mean that progress in the early years can be at a very slow pace.

BUYING POWER

On stationary, internet, marketing, newspaper advertising etc.;

SMALL CONTRIBUTIONS FOR BIG OUTCOMES

=Due to the size and buying power of franchises small contributions to joint marketing can get you far better coverage and value for money than doing something individually.

SPECIALIST DIVISIONS FOR YOUR BENEFIT

Most franchises will have specialist divisions for marketing, technology, trainingand communications which as an independent you could just not afford.

Marketing Division

Technology Division

Training Department

Communication Department

YOU DON’T HAVE TO COME UP WITH ALL THE IDEAS

As an independent you have to be constantly thinking of ways to improve your business, update your website and marketing and stay on top of technology whereas a franchisor does all that for you.

NO NEED TO WORRY ABOUT UPDATING YOUR BRAND

That is for the corporate team to worry about

ACCESS TO THE BEST SPEAKERS &TRAINERS

Whilst independents can get access to great speakers and trainers at annual national conferences Franchises provide this sort of training on an ongoing basis.

RECOGNITION

Opportunities to be recognised through award’s programs

FRANCHISES HAVE SYSTEMS IN PLACE THAT HAVE EVOLVED OVER TIME

It’s been proven that systemised businesses have a very high success rate compared tofledgling organisation's, which often have a lot of trouble building a foundation to work with in their first few years.

NETWORKING OPPORTUNITIES

Franchises provide a multitude of opportunities to network with other like minded people.

A SUPPORT NETWORK

As an independent you are on your own, you don’t have a network of people that you can talk to about issues

ABILITY TO TAP INTO A VAST BANK OF MENTORS

Within a franchise group there is a vast amount of knowledge and Experience that can be tapped into for the benefit of everyone

ABILITY TO BE ABLE TO PROVIDE MORE SERVICES

Through affiliated companies- eg. Finance & Insurance brokers, Conveyancers, solicitors,Utility connection companies, Depreciations specialists, Building companies etc.

TOOLS TO ASSIST IN RECRUITING

Marketing material , training programs, structured careers paths as well as associated partners (previous slide) and access to different sectors (e.g. Rural ,commercial, body corporate)

MARKETING MATERIAL

Generally speaking more resources to develop and continually upgrade all marketing material

GENERALLY MORE IN-DEPTH AND ELABORATE WEB SITES

Franchises have the resources to generally create more elaborate and in depth web sites

ACCOUNTABILITY TO GOALS AND BUSINESS PLANS

Most good franchisors will help franchisees with business planning and then keep the business owner’s accountable to the goals that they have set in the plan.

BETTER OPPORTUNITIES TO WIN CORPORATE BUSINESS

Franchises undoubtedly have better opportunities to win Corporate and institutionalbusiness (e.g. -Government business, mortgagee in possession, Public trust etc.)

REFERRAL NETWORK

It is believed that franchises have larger data bases and access to more national and international buyers. Theoretically speaking large franchises do have an extensive referral network of affiliated real estate offices.

EASIER TO ATTRACT BUYERS TO A NATIONAL BRAND

It is generally easier to sell a business with strong national backing than an independent.

MARKET SHARE

Generally speaking the bigger profile that a larger market share brings will give the franchisee an advantage over the Independent operator

YOU CAN CONCENTRATE AT WHAT YOU ARE GOOD AT

Do what you do best and outsource the rest

By being part of a franchise it allows you to do what you do best in selling houses, notcreate marketing material, design web sites, set up systems, train a team and so on

WARNING – DON’T WASTE YOUR MONEY

Unless the product that the franchisor has to offer is good and you as a franchisee intend tomake use of their full range of support/training/ systems etc. then you are wasting your money.

REASONS FOR TAKING ON A FRANCHISE

• “In my mind I have no doubt that in the current climate the franchise model is more relevant than ever. The real estate industry is one of the most competitive in the Australian economy. To be focused on growing a business to generate profit, manage people and develop a successful team and stay up to date with the latest technology, while in some cases, concentrating on your own sales, can at times feel almost impossible.” Rob Forde CEO Harcourts NSW

ARE SOME FRANCHISES BETTER THAN OTHERS?

YES so do your homework

WHAT SHOULD YOU LOOK FOR IN A FRANCHISE?

• Strong leadership• Market share• Signs of growth • Other good people already working there• Little business owner/staff turnover• Marketing that is constantly being upgraded and tweaked to stay ahead

of the pack• A strong brand that is strongly monitored and protected• A great technology platform• A strong training program• Strong Values

ARE THERE OTHER OPTIONS?

• Yes, some real estate groups are more like buying groups• They offer little in terms of support, training, marketing or technology• But you only pay a set fee per month regardless of what you sell

FRANCHISE VS INDEPENDENT

• Does it make a difference to the client?• In Sept 2008 a consumer report on real estate concluded

that there was no indication of any difference in the levels of satisfaction between sellers using independent agents or franchised agents.

CONCLUSIONS

• There is room and need for both in the market• A name on a door does not guarantee success• A good independent is far better than a average franchise• There are times when it is definitely better to go with a franchise• A franchise will generally give you a quicker impact • If you don’t have the right people on the bus it doesn’t matter which

model you choose.