The concept of Estate Agency Franchise although relatively new in Ireland is more mature and common place in other jurisdictions or other countries particularly the United States.
The earliest sign of franchising in any sector dates back to the 1850’s with Isaac Singer the inventor of the Singer sewing machine. During his search for an effective and an affordable way to distribute his product for his company, the Singing Sewing Centre, Singer ran into problems that prevented his company from being successful. His first problem was a lack of capital for manufacturing his machines. Secondly, no one was willing to buy his sewing machines without first being taught how to use them, which required effort that most traditional retailers could not provide. Singer’s solution was to charge licensing fees to business people who would own the rights to sell his machines in certain geographical areas. They would also be responsible for teaching consumers how to use his machines, thereby creating sales opportunities. Other companies noticed this novel approach and modified this business model. Now there are franchise companies providing a plethora of products and services to consumers and businesses around the world. From “Bark Busters” a franchise to keep dogs from barking and disturbing the neighbours to Crime Scene clean up!, the list keeps on growing.
An estate agency franchise is a contract or agreement where the Franchisor, the Owner and Developer of the franchise system licences, franchisees the use of trademarks, service marks, logos, or advertising owned or developed by the Franchisor. Some franchise systems are operated using only the Franchisor’s brand name such as McDonald’s. In others the franchised brand is used in tandem with a trade name which the franchisee establishes. Examples in Ireland include Coldwell Banker Paul Doyle Estates.
The common brand enables all participants in the franchising system to benefit from advertising and good will generated from the operation of each unit whether operated by franchisees or the franchisor. Since consumers are brand driven, this larger, more recognised name created by common use of the franchise logo tends to drive customers to the franchised business.
Every successful franchise organisation involves a method of doing business which is common to all franchisees and franchisor. The business systems in the real estate market usually include methods of delivering services, standard signage, accounting systems, inventory control and data management. This systematic method of doing business employs a feature of franchising known as “Speed to Market”, meaning a business can rapidly expand their delivery of services to consumers since they repeat successful methods in every transaction.
Franchisors usually levy an initial franchise fee followed by monthly royalty and advertising fees. Typically in Ireland the initial franchise fee is 20,000 to 35,000, on going royalty fees from 6% – 9% of gross revenue. There’s usually minimum fees for the National Advertising Fund ranging from 3,000 per annum to 2 1/2% of gross revenue. Other fees may be levied for the licence to the technology provided, and ongoing training. This pooling of resources allows franchisees access to business systems that are ordinarily the province much larger organisations.
Most estate agency organisations require franchisees to contribute to regional or national advertising funds and also to spend money promoting the brand locally. The benefits of cooperative advertising in franchise systems arise both from the increase number of advertisements that multiple contributors can buy, and also from professional advertising agencies, market research, public relations, and other support.
The franchisee is an independent operator owning his own business. Franchisees operate their own businesses, are entitled to all profits that are generated, are responsible for paying their own taxes and to their own employees. In Ireland the majority of estate agency franchisees are conversions of existing businesses rather than new start ups, (however this is changing in favour of start ups). This form of franchise occurs when the owner of an operating estate agency office decides to affiliate or franchise to a franchise chain to take advantage of the brand and certain components of the operating system. This is a different type of franchise relationship than is typically seen in the fast-food industry where the business owners do not need to know anything about running a restaurant in order to operate the franchise.
In affiliation franchising to date in Ireland, the franchisee is allowed to continue using a pre existing trade name along with the franchisors brand name. Conversion franchising or affiliation franchising is the most commonly used in estate agency. The franchisor seeks active owner operators, believing that value is added to a franchise business by having the motivation and entrepreneurial efforts of owner operators.
The development of ecommerce and the internet has resulted in the potential increase in franchising. Through the internet and intra nets, franchising companies are able to communicate faster and better with franchisees, suppliers and consumers. If you own an estate agency is franchising right for you? That depends. Franchising is a business strategy in which the parties share many interests, but not all. Both parties depend on the efforts of the other for their own success, but don’t necessarily succeed just because their partner does. Franchising only thrives when both franchisor and franchisees achieve their objectives. Although it shares some attributes with a partnership, franchising is not a true “partnership”. However there are many benefits of franchising. For example, business owners do not have to maintain a brand name or consider the best way to operate their business. These elements are provided by the franchisor which in turn allows franchisees to concentrate on expanding their business The reputation that the brand conveys is immediately available to the new franchisees.
Franchising is a business relationship and each relationship is personal. No two people who are approached will find the same advantages or disadvantages of franchising. Many factors will influence whether a franchise relationship is good, just as many factors influence whether any other personal or business relationship is good. And, as in any relationship, the benefits to the parties to a franchise relationship must, over the long term must out weigh any disadvantages, if the relationship is to endure.
Expect no more than what the franchisor promises in writing in the franchise agreement. Confirm your understanding of those promises through conversations with existing franchisees and question the franchisor. Ensure that the franchisor responds to the issues that concern you about its programme before you enter into any agreement.
After the franchise agreements have been signed most estate agency franchisors will help franchisees to develop or revise business plans. Training and orientation of the franchisors business systems will be delivered within the first few months to the manager/owner of the franchisee company and in cooperation with the manager/owner, training will be delivered to the sales agents and administrative staff. Some estate agency franchisors also employ business consultants to liaise with the franchisees on an ongoing basis to assist them to grow innovate and increase their market share.
One of the most valuable forms of business consultation available to estate agency franchisee arises from the relationship one franchisee develops with other franchisees within the network. Whether they meet locally, regionally nationally or internationally franchisees in the same system develop a kinship and collegiality arising from the way they address similar problems. Most franchise organisations have formal and informal franchisee networks, within which franchisees are typically willing to share their experiences with their colleagues.
Most estate agents in Ireland are so focused on day to day operations that they have very little time to devote to research and development. Franchisors often become aware of market trends and other developments if for no other reason than they operate in differing markets around the country or around the world and because they are active in industry associations. Estate agency franchisors are usually leaders in their industries and employ professional staff whose job description includes finding ways to do things better. They naturally attract consultants and others with new products and business ideas. This knowledge is generally freely passed onto franchisees and often works its way into the business strategies of the franchise network.
On the reverse side many franchisees often come up with new ideas on ways of doing business, which they also share with their colleagues and the franchisor. In fact, most franchise agreements require this sharing of ideas and information. Most franchise organisations test new ideas for products with franchisees before “rolling them out” through the rest of the franchise organisation. This approach to innovation can often avoid mistakes, although it does not dictate that every innovation or marketing plan will be successful.
However, surely one of the most important benefits is the business resale opportunity also called the “exit strategy. At some point the owner of every business wants to sell on or otherwise transfer ownership of his or her business. The business which has an established reputation and brand name often is attractive for purchasers by the franchisor, existing franchisees, as well as by prospective franchisees. Because franchisors are regularly engaged in recruiting new franchisees they also may be able to identify someone who would rather invest in an existing business rather than a new franchise business. Sometimes the franchisor in considering an initial public offering of its stock may want to acquire a successful franchisees business to make it a part of a public offer. This along with the fact that franchisees have contracts that provide support, access to business systems and a recognised brand name may enable franchisees to participate in and be paid a higher multiple of earnings than might be paid if the business was sold other than as a part of a publicly traded company. There is likely to be a higher demand for a business that operates as a franchisee of a successful franchising company than there is for a small business which has a single location and which is perceived to be successful primarily because of the reputation and skills of the individual business owner.