Franchise Company

Saturday, March 20, 2010

Franchise Companies do not Guarantee Success in the Bath Remodel Industry

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The housing boom created an exuberant environment in which many residential remodel businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line.

A canonical franchisee's specialty remodel business model (as those at Rebath or Bathfitter) relied on harnessing network effects at a sustained net loss to build market share/brand awareness.

The franchisee expected that they could build enough brand awareness to charge profitable rates for their services later. The motto of the franchisor "get big fast or get out" reflected this strategy.

During the loss period the franchisee's relied on tapping the build up of equity of their homes due to the housing bubble, personal saving or inheritances to pay their expenses

Network effects become significant after a certain sales level has been achieved, called critical mass, a term to describe the existence of sufficient momentum that the momentum becomes self-sustaining and fuels further growth.

As the value of the goods is determined by the user base, this implies that after a certain number of people have purchased the goods, additional people will purchase the goods due to the positive perception of utility: price ratio.

Much of the growth was driven by unsustainable increases in home sales and the harvesting of the equity by homeowners. Not surprisingly, the "growth over profits" mentality and the aura of invincibility led some franchisees to fail when the housing bubble burst: declines in sales of 30 to 60% were reported thru-out the franchise.

The revolutionary optimism of the boom faded, and rather than a reflection of a fundamental shift in customer preference the franchisee once again recognized the relevance of an "old economy" business model.

Several franchisees, burdened with unredeemable debts from their expansion projects, sold their assets for cash or filed for bankruptcy. This capitulation thus became a symbol for the ultimate survival of the remaining franchisees.

It will unlikely that the industry will resume the 2005-2006 highs because of fundamental changes in the residential remodel industry.

Franchises will again have to accept realistic expectations of business growth and return of the market to the 1990's era pricing and sales. Seemly the return to the "old business" model where profits drove economic activity will be the one necessary for business survival.

A company like North Star Bath Remodeling, Southlake, TX was able to quickly adjust to the changes in the market conditions. Surival of the company required the freedom to do the surgery necessary to insure the firm's surival.

The company not only surived the turn-down but was named one of the TOP 500 Remodel Contractors for 2008.

(ArticlesBase SC #1209748)

Lloyd Summy - About the Author:

Labels: franchise companies, franchise industry, franchise success

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Can your Dollarstore Franchise Company Answer These Questions?

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One method that many who seek dollar store expert help to start their dollar store is using a franchise company. In essence you buy a dollar store franchise opportunity to gain that expert assistance.

Most franchising companies provide you with the rights to use their company’s name, trademarks, and operating systems in your dollarstore. They exchange these for a franchise royalty fee and a percentage of your gross monthly sales.

In situations where you need a great deal of training franchising might be the right solution for you. It is definitely one way to find a proven system. Be careful about the costs and fees, as they can really affect your final dollar store profits and losses situation.

Tip #1) Know exactly what owning an exclusive territory can and cannot do for you. A franchisor or business opportunity company may make claims about you owning the territory. However for many who start a dollar store the real competition comes when a big national company comes into your town and opens right down the street from your store.

Tip #2) Know the exact fees being charged. Every dollar store expert earns money for their services. Some may charge a few hundred dollars. Others may end up billing a few thousand. For some companies after all is said and done there are earnings of many thousands associated with helping open dollarstore businesses. This comes in the form of straight out fees, designated franchise fees and costs, vendor commissions, and many others.

Tip #3) Speaking of franchise fees; know exactly what those extra costs mean to your business. The franchisor gets paid first whether you make a profit or not. Be sure you need all the help being offered. Be sure you can still make a profit. There are some instances where selecting a franchise company might be best when you start a dollar store; be sure your dollarstore is one of those.

As with all dollar store experts franchise companies can provide valuable support as you start a dollar store and then grow your business. However there are fees and costs required before and during the operation of your business.

Franchise companies also have defined actions that franchisees must complete. For some new business owners the support is worth it, but for others this is not the right path to follow. Complete thorough due diligence and then make sure all of the terms and conditions are right for you and your situation.

To your success when you start a dollar store!

(ArticlesBase SC #1090443)

Bob B Hamilton

Labels: company franchise, dollarstore franchise, franchise company