Going into business – franchise versus independent agency

Business, Careers,  Principals

Throughout the process of opening your own real estate office, you’ll have to make a lot of important decisions, but perhaps none will be quite so influential as the choice between a franchise and an independent agency.

Certainly neither are without merit, and strictly speaking there is no right or wrong choice, but that doesn’t mean that it’s a decision to be made lightly.

Running your own business is more than simply a job, it absorbs most of your life, so be sure not to make the franchise vs independent agency choice without properly assessing their respective pros and cons.

Brand recognition vs a personal touch

Perhaps the biggest advantage of starting a franchise agency with a well-established real estate organisation like Ray White Group or RE/MAX is the instant brand recognition that comes with it. While you still need to spend some time getting to know your local area (if you don’t already), your potential clients will already have heard of your business and most likely accept it as a trustworthy label.

Building brand loyalty is much easier when your brand is already established in the eyes of those you’re hoping to sell your services to.

Conversely, this is possibly the most difficult part of getting an independent agency off the ground. A home is usually a person’s largest asset, and trusting that asset to a brand they haven’t heard of is going to take a lot of convincing from a marketing standpoint.

With that said, Australians aren’t overly trusting of larger corporations, which may indicate a benefit that comes with a smaller business – namely a more ‘personal touch’.

Smaller businesses are often seen as friendlier and more approachable – even more so if they’re family owned.

People may feel that someone who works for a small business is going to spend more time focusing on their needs, and treat them less like just another transaction.

Of course, being a smaller business doesn’t mean people who prefer the personal touch will come flocking – independent agencies will still have to put in a lot of leg work from day one to get their brand known and earn their reputation.

Franchise fees vs upfront costs

Those vital early marketing ventures can be very costly, and need to be paid up front before the business has turned over even a dollar of profit.

Combined with a website, branding, and other set-up costs, the upfront expenditure of starting an independent agency can quickly become exorbitant.

If you can survive those early outlays, however, a successful independent business can generate a huge return on investment because it isn’t marred by franchise fees.

In addition to the initial fee to open a franchise, franchisees will also need to pay weekly or monthly royalty fees, usually as a percentage of turnover, which is sometimes as high as 10 per cent.

On top of that, many franchisors will also charge their franchisee a marketing fee to keep the brand well-advertised, as well as renewal fees – depending on what was outlined in the original documentation.

National Retail Association CEO Dominique Lamb claims 80 per cent of independent small business don’t last five years, while only 20 per cent of franchises fail in that same time.

No doubt then, the franchise option brings more stability and reliability, but the decision is still about weighing and managing risk against reward.

Structure vs flexibility

LJ Hooker was founded over 90 years ago, and Ray White Group over 100, so it should come as no surprise that such well established brands have well established business models.

Of course, surviving and thriving as a business demands a level of adaptability, but brands that have stood the test of time are invariably going to have a more fixed structure in place regarding their marketing and training methods.

This can be an advantage or disadvantage depending on your situation.

If you need that kind of pre-determined structural frame to operate within, a franchise with a company like those above may serve very well; conversely, if you’re somebody who prefers a licence to experiment and innovate with business models and marketing, then you may feel constrained as a franchisee.

As a franchisee, you’re representing a much larger brand, and the franchisor will expect you to conduct yourself and your business in a way that aligns with the core values and methods of said brand which, for some, may be restrictive.

The right decision for you

Weighing up the pros and cons may make it clear which avenue represents your ideal business venture, but whichever one you choose, it’s important to realise that ultimately it is you and your staff that will determine how well your business does.

After all, a brand is only as effective as its people.

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