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You May Get What You Pay For!
March 05 , 2010

You may get what you pay for!

Fred came to us after he had conducted preliminary research on two franchise companies in the same industry. 

He was financially qualified to purchase either of the two.  They had both submitted their franchise disclosure documents to Fred for his review.

They offered similar territory sizes to Fred.  The area that he wanted was available from both. (These were mobile franchises so a specific location was not an applicable consideration).

The one area that Fred was struggling with before he contacted us was the initial franchise fee.  The company that seemed more appealing to him had a franchise fee that was $10,000 higher than the other franchisor. 

Fred was convinced that there weren’t substantial differences between the two companies that justified such a price difference.

It was at this point that Fred contacted us to conduct an impartial comparison and help him determine, if possible, which company he should go with.

We reviewed the disclosure documents which revealed that the more expensive offering indeed offered an additional week of training in the new franchise territory.  While both companies actually came to the newly franchised territory the more expensive of the two actually spent three weeks in the territory rather than the two weeks offered by the other company.

In addition, we were able to determine that the more expensive franchisor had a more substantial and seasoned field staff which conducted regular field visits to its franchisees.  The cheaper franchisor, while it did make the initial visit to the area to start the franchise, seldom if ever returned to the area for quality or morale or new business idea sharing.

What finally led us to recommend that Fred go with the more expensive franchisor was our determination that its franchise owners got off to a much quicker start and usually experienced positive cash flow within a matter of months.

This was borne out by a selected number of phone calls to franchisees of both systems.

When all factors were considered the cheaper company was not really cheaper at all.

In the case of a really strong operator with superior selling skills either franchisor would have been fine.  In this case, because this was Fred’s initial foray into owning his own business and because he lacked selling experience, we felt that the more expensive franchise was still the better value.


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