The Skinny On Low-Cost Brands
High investments can be a barrier for entry for many in considering a franchise. And while a lower investment can be attractive, understanding the pros and cons is valuable. One of our resident experts, Mike Halpern, CAFC and owner of Franchise Freeway, a FranServe, Inc. affiliate, weighs in on low-cost franchise brands and how they might be a great option for aspiring entrepreneurs.
What are the characteristics of a low-cost brand?
A low-cost franchise brand typically doesn’t require a physical retail location, eliminating the need for construction and a lease. It can be a home-based business or one that services residential and commercial customers using leased vehicles. Opinions on what constitutes a “low-cost” franchise may vary, but it can typically be launched for under $50,000. This figure includes the franchise fee, initial inventory, marketing, equipment, and working capital. Industry categories that include low-cost franchise brands include cleaning, travel services, business consulting, vending, pet services, and many more.
What type of clients are seeking low-cost brands and why?
The primary clients I work with who are seeking low-cost franchises include lower-net-worth candidates, those seeking a lower-risk opportunity, and corporate “refugees” interested in change without betting the farm.
My son Lane Halpern, currently a University of Tennessee student and Intern here at Franchise Freeway, has also assisted younger entrepreneurs and first-time franchise investor clients who seek out low-cost brands.
What are the pros and cons of low-cost brands?
Pros: Less expensive, fewer employees, lower equipment costs, no construction, no lease, and less financial exposure.
Cons: In general, lower reward/upside when it comes to revenue, potentially less brand awareness without a physical location and aggressive marketing, and less financial “skin in the game” may lead to neglecting the business.
Which low-cost brands do you frequently recommend to your clients and why?
Naturals2Go is the first that comes to mind. It is a vending opportunity that is low-cost, requires little labor, and allows the owner to keep their full-time job. Owners can grow the business once they have acquired more funds by purchasing additional machines.
DoodyCalls is a pet waste disposal franchise which can be operated as an owner/operator or semi-absentee. It’s owned by Authority Brands, a leader in home services franchising. It has residential, commercial, and municipal applications.
And finally, Schooley Mitchell, a work-from-home B2B consulting franchise in the expense reduction segment. Franchise owners are not restricted to a traditional territory, which is great for clients who are prolific at business development.
Are there resale opportunities for low-cost brands?
Yes, low-cost brand owners exit the system for various reasons and offer their operating franchises for resale at an affordable price. Low-cost franchise acquisitions should be thoroughly vetted like any other franchise purchase. A low-cost franchise buyer should surround themselves with franchise experts to guide them carefully through the acquisition process.
Overall, when considering a low-cost franchise investment, it’s still important to choose an option that fits one’s goals, experience, and interests. Simply purchasing a business because it is one you can afford at the time may not be a recipe for success.
Nancy E. Williams