Understanding Your Potential, Next Investment: Complementary Franchises
Are you a franchisee who experienced great success with your first franchise location?
You’ve come to the right place!
Perhaps you’ve worked closely with and taken the advice of knowledgeable Franchise CPAs to avoid legal trouble and tax-related headaches and are now considering alternative ways to grow your wealth. Franchises are an excellent candidate for the economies of scale principle, and if your first location is profitable, you should probably consider opening a second and third. Complementary franchises are a promising opportunity for franchisees to leverage their existing resources, infrastructure, and clientele to grow their portfolios and circumvent financial turmoil in an economic downturn.
This article will dissect the pros and cons of complementary franchising and explore how ambitious franchisees can apply it to see significant returns.
So, what exactly is a Complementary Franchise?
Some brands just work well together! In its most basic terms, complementary businesses are two franchise brands that can support one another. If a franchisee has an adequate understanding of the specific industry and customer base at hand, determining another brand that tends to a unique but compatible need for that consumer should be simple.
For instance, a franchiser with a successful gym location in a high-traffic area might consider investing in other enterprises related to health and fitness, whether it be a vitamin and supplement shop or a health food restaurant.
Complementary brands encourage growth among one another by providing more value to their shared target audience. Not only are these complements valuable to the community they serve, but multiple franchises can propel franchisees to new levels of wealth and success.
Complementary Franchises: is it a Risky Business?
Benefits of owning cooperative businesses include a low failure rate, the ability to do something you love, and flexibility. However, self-awareness is at the forefront of gauging a franchisee’s success, regardless of how many units they own. Before diving into expanding your portfolio and investing in a complementary business, perform thorough self-audits, both business and personal.
A franchisee’s action or inaction is directly related to the success of the franchise. The franchise owner must be willing to perform comprehensive market research into this new segment by asking some of these crucial questions:
- Is this brand desirable to my existing customer base?
- How can my current brand benefit from this potential complementary brand?
- Are cross-promotion and the sharing of resources feasible with the possible brand?
Another likely risk to consider is seasonal downtime. Ideally, a complementary brand should have an opposite peak time to counterbalance any “off-season” the initial franchise experiences throughout the year.
With Great Risk, Comes Great Rewards!
Even when taking proposed risks into account, the rewards associated with complementary businesses still prove worthwhile, especially in today’s political and financial climate.
Just one of the many benefits? Protection against market volatility and economic downturn.
Just as stock market investors diversify their portfolios to offset market fluctuations, franchisees can diversify their investments by opening complementary businesses that cater to the same audience without competing with their primary franchise.
The best part? Your secondary business should be able to share resources with your first franchise. Think physical location, inventory storage, bulk supplies, staffing, marketing materials, and operational systems. As previously mentioned, when planned correctly, the franchisee should have no off-season and could collaborate on anything from advertising to brand sponsorships between the cooperative franchises. When both of these businesses succeed, the possibilities are endless!
Consider the opportunity available to a laundromat franchisee interested in investing in a delivery service. Partnering these cooperative brands provides a new world of value to the loyal laundromat patron and targets the individual who did not have the time to frequent the laundromat before.
Building on our laundromat example from above, a franchisee’s primary storefront might be so successful that they decide to open another one. This alternative for prospective franchisees is known as multi-unit franchising, in which a franchisee opens multiple locations of the same brand.
Now, back to complementary franchising. Franchisees can leverage cooperative branding to double down on their target audience, build trust by leaning on the reputation of the initial franchise, and create a strong presence in their community.
A franchise beauty supply store could benefit from integrating a franchise beauty salon as a franchise appliance retailer could benefit from a franchise appliance repair shop. These cooperative branding examples add convenience and practicality to a territory, helping both the franchisee and the consumer.
Complementary franchising diminishes the dreaded off-season for any business owner, is cost-effective when both organizations can share resources, and efficiently serves the community while providing financial prosperity to the franchisee. Start your market research today to discover the complementary franchise that will service your clientele while growing your wealth and diversifying your portfolio.
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