Are you passionate about puppies? Do you dote on doughnuts? Often, the choice of which franchise business you should invest in comes down to the industry it’s in. You care about cars, so you naturally think of an automotive franchise, or you have experience with e-cigarettes so you head for a vapor parlor franchise business.
This method doesn’t work if you don’t have that passion, and it might not be the best choice if your background is in something you don’t enjoy. Come at the question another way and think about whether you want to offer goods or services.
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There are some things that are generally true about businesses that sell goods, which are different from the things that are generally true for companies that sell services.
If you sell goods, you have physical objects to look after. Here are some of the issues that you’ll face with a goods-centered business that won’t be issues if you sell services:
- Sometimes the cost of transporting, warehousing, and delivering goods are higher than you would expect. Manufacturing companies sometimes find that the cost of logistics is as high as the cost of producing their goods, and sometimes even higher. We’ve probably all had the experience of getting ready to buy something online and finding that the price of shipping is nearly as high as the cost of the products. The same thing can be true for franchises. Make sure to find out the specific costs of getting your products onto your shelves and to your customers.
- If you have to keep inventory on hand, you will have money tied up in that inventory. You haven’t lost the money, but you also can’t use it to cover payroll or to invest in marketing — or to restock items that sell out. “I thought I could stock my store, wait for everything to sell, and then stock it again,” one franchisee laughed. “It doesn’t work that way.” If you get the goods from a franchisor, you will probably have terms that allow you to make sales before you have to pay for the products, but sometimes there are up-front costs. You also have to be able to predict how much you’ll sell, and you need a plan for selling through while the stock is still good.
If you sell services, you’re selling time. You don’t have to find shelf space for it, but you may still have challenges that those who sell mostly goods don’t have:
- A service business may spend as much as half their total revenue on payroll. Since you’re selling people’s work, paying the labor costs is bound to be your largest expense. Training and managing your staff is also probably one of the biggest time investments. You must be prepared to make that investment in your workers, including those who don’t do billable work. If your business is labor-intensive, you may also have to pick up the slack for workers when they’re ill or when you lose a worker.
- Income limits.If you work by yourself in your franchise service business, you can only earn as much as you have time to earn. There’s a limit to what you can do by yourself, and that’s the limit to your earnings. In addition, someone has to take care of invoicing and other administrative jobs, and perhaps also cleaning, sales, and other tasks. When you do that work yourself, you lose time that could be spent on billable works. Of course, you can hire employees. In that case, see the paragraph above.
Goods or services? Both can be great, and you might even want a mixture. But some people might be better suited to one or the other. Think about it as you consider the best franchise business opportunity for you.