3 Questions You Need To Answer When Choosing Factor-Based Products Buying A Franchise Vs Top Tier Direct Sales Business

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Buying A Franchise Vs Top Tier Direct Sales Business

Many people seem to think that buying a franchised business can be the way to own their own business, thus owning their own future and ensuring financial independence. that flies directly in the face of owning your own business and being your own boss. Let me say up front that I am not against franchising, I just believe that owning a franchise may not be for the true blue entrepreneur who needs total freedom.

But let’s start at the beginning.

I have 2 friends who invest in a Direct Buy store. The capital required for the startup is $300K for the franchise fee, $750K to acquire space and build a showroom, and they have to pay a 22% royalty on sales, supposedly to pay their share of corporate marketing. , advertising, etc. Boom, right out of the gate you’re in the game for $1,000,000+. With the above business model, they sell a membership that gives people the opportunity to buy directly from more than 700 manufacturers at confidential insider prices, just like the stores do. A sales staff must be hired and trained in sales. This means that store owners, must already have or be willing to learn the necessary skill sets to sell. Which also requires more investment in time, material and resources. The truth of the matter is that no matter what type of business to start, you must always learn how to sell.

As with many small businesses, profits must grow and be reinvested in the beginning. Which means if you’re smart, you’ll put yourself on a minimum wage for anywhere from 2-5 years, until the business can actually support paying you a profit. Not in all cases, but in most. And most franchise companies don’t provide actual, real-time information about income potential. And when they do, they generally use numbers before any cost reductions. That just doesn’t help when trying to decide to invest a boatload of money in a franchise.

So we cover high start-up costs and questionable profits.

Remember that in the example above, we’re not talking about a McDonald’s store here folks. Not even a Burger King or Wendy’s. A McDonald’s startup can run between 500K and upwards of $3 Million, depending on the location. Now, if you already have a corporation that can support that kind of investment up front, this kind of arrangement can make sense. But if you are an individual with limited capital, I believe that investing in a high level direct selling business is a much wiser investment.

Another thing to consider is that when you buy a franchise, you are not only buying the right to use the franchisor’s name and store, you are also buying the business plan. You must adhere to the design, price and appearance standards of the company in question. This limits the way you can operate your franchise. This can help promote equality, but if you are a true entrepreneur, it will severely limit your creativity and freedom, often a death knell for the serial entrepreneur. That said, if you’re the type of person who needs to be micro-managed and told what to do, how to do it etc., this might work for you.

As far as royalty payments go, this is it. However, remember that these payments will eat into your income.

Most companies have post term competition restrictions. This means that if you decide to open your own burger joint after a few years, due to standard non competition clauses, you cannot open a similar business after your agreement is over. In effect, you may be unknowingly limiting your business opportunities for years after your contract expires.

And there is also the chance of unfair termination. The slightest mistake on your part, even unintentional, can cause the franchisor to terminate the agreement with you. This includes, but is not limited to, late payment of royalty, violation of standard operating procedure or more. And if your store happens to not be as profitable as a franchisor would like, trust me they will find ways to pull the plug, without you doing anything. Now, in all fairness, most franchisors aren’t that strict but the possibility of losing your entire investment is a scary possibility.

There are other considerations as well, such as infringement, advertising fees, lack of legal recourse, etc.

Now let’s compare this to a top tier direct selling business. In most of the top tier direct selling models, there are different levels of investment. This can be compared to owning one corner against the other in a franchise model. A better location equals a higher investment. For the purpose of this example we will assume that there are 3 investment levels:

Level 1: 1695.00 = $1000.00 Commission for selling this product.

Level 2: 8995.00 = $5000.00 Commission for selling this product.

Level 3: 14,995.00 = $9000.00 Commission for selling this product.

Total investment of all 3 levels = 25,685.00

Total Commission for selling all 3 products = $15,000.00.

Let’s assume you start at a high level and invest 26,685.00. It gives you commissions on all three products, meaning if you sell all products to one customer, you earn $15,000.00 in total commission. Both sales recoup your total investment. For simplicity, let’s say the cost of these two sales is 10% of the total commission earned or 1500.00. This is a very high number, so we can keep your ROI conservative. You even get your initial investment back and then some, in just 2 sales. Also, there are less overhead costs, since you are working from your home office. Ideally, these expenses should be tax deductible, but I’m not a tax professional so be sure to check yours. If you do what is taught, you should recoup your initial investment within 60-90 days of starting, most people sooner. After your initial 90 days your sales funnel will be full and should start seeing 1-2 sales minimum per month. Let’s say you only sell all three products month after month for the remaining eight months after your 90-day start-up period. 15K in commissions per month for eight months equals 120K, and your original 30K in commissions you earned in your first 90 days equals 150K. I’m no rocket scientist, but a 150K ROI from a 26K investment in 12 months is pretty impressive. From year two, your direct marketing business should be making 250K or more in revenue. There are earners over seven figures in this industry.

Obviously it doesn’t just happen, there is work involved. You should be working on your marketing, sales skills, etc. Some organizations offer general marketing support, even systems that can facilitate your sales and marketing efforts. We offer our partners a full sales suite as well as full sales training and coaching. We use a sales system known as Natural Selling, which is a sales system based on dialogue. This is another point. What is your sales concept? What if the sale isn’t what you thought it would be? What if there was a way to sell without the tension, stress, pressure and opposition associated with traditional selling? There is and this is what we teach.

Therefore, as mentioned earlier, the potential ROI relative to the capital invested is relatively large.

There are many other advantages to operating a direct selling business from home. Like not having to hire high school kids to babysit. There are no royalty fees and other associated costs of owning a franchise. The biggest benefit for me is the total freedom that working from home gives me. No corporate messenger boy stopped by to tell me that my bathroom floors were not up to company code. (Don’t get me wrong, I’m all for clean bathrooms, just using an example.)

The fact that I can pick up and drop off my granddaughter from school is a huge bonus. And when he rambles his pretty little self into my home office to give a hug to me, that’s pretty awesome too.

To your success.

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