In today’s article, we’ll address the question that many franchise owners often ask: How do I expand and grow my franchise? While there’s no quick answer, we’ll explore two key strategies: horizontal growth and vertical expansion. Let’s dive into each approach.
When it comes to horizontal growth, it involves expanding your franchise by acquiring additional territories. Let’s take the example of a service-based franchise with a territory size of 50,000 in population. With horizontal growth, you can purchase additional territories of the same size.
Here’s how it works: Let’s say you initially purchase three territories, totaling 150,000 in population. However, you won’t develop all three territories at once. The franchise company will provide you with a schedule, typically spanning six to twelve months per territory, ensuring you gradually develop all three territories within two or three years.
The advantage of horizontal growth is that you’re already familiar with the franchise system, reducing the overall investment required. While each additional territory comes with a separate discounted franchise fee, you’re securing your future expansion by locking in these territories. This strategic approach protects your business from anyone else purchasing that area.
In a service-based model, especially those without brick and mortar locations or with small offices, you have the flexibility to grow into the territories gradually. As your business expands, you can add employees and resources, such as technicians and vehicles, to accommodate the increased demand.
Even in the case of brick and mortar franchises, you can apply the same concept by opening multiple locations within a certain radius. While this method may take longer and involve higher expenses due to build-outs, it allows you to stay within your brand and streamline operations.
Shifting gears, let’s explore vertical expansion, also known as franchise stacking. This approach focuses on adding complementary brands or services to your existing franchise. For example, if your current franchise is a painting service, you can consider adding restoration or mosquito spraying services.
Vertical expansion often involves a higher upfront investment, as you’ll need to learn and integrate new brands and services. However, many parent companies offer discounted franchise fees for franchise stacking. While it requires additional training and different employees to handle the various services, the advantage lies in the potential upselling to your existing customer base.
By approaching your previous customers and presenting the additional service lines, you can leverage their satisfaction with your brand and easily generate upsell opportunities. This approach works particularly well in service-based businesses, where you can tap into the synergies between different brands under the same parent company.
With brick and mortar franchises, you can also consider adding complementary brands within a specific radius. For instance, a fast-serve burger brand could complement a casual dining option, both under the same overarching brand. By carefully selecting brands that align and complement each other, you can benefit from cross-promotion and capitalize on existing customer loyalty.
Finding the Right Approach
When deciding between horizontal growth and vertical expansion, there’s no one-size-fits-all answer. The choice often depends on your circumstances and preferences. Sometimes, external factors like territory availability might influence your decision. If additional territories aren’t accessible, adding complementary brands could be a viable alternative.
It’s crucial to consider funding implications when exploring expansion options. Engage in early conversations with your funding company to evaluate the cash outlay, liquidity requirements, and funding coverage for multiple territories or brand stacking. They can guide you through the process and help you determine the most suitable funding strategy.
Expanding and growing your franchise requires careful consideration of the available options. Remember that there’s no right or wrong approach—it’s about finding what works best for you and leveraging the resources and opportunities at your disposal.
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