Discover the Surprising Differences Between Conversion Franchise and New Build Start-Ups in the Franchise Industry.
| Step | Action | Novel Insight | Risk Factors |
|---|---|---|---|
| 1 | Choose between a conversion franchise or a new build | A conversion franchise is an existing business that is converted into a franchise, while a new build is a brand new business that is built from scratch. | The investment cost for a conversion franchise may be higher due to the need to renovate and update the existing business. A new build may take longer to establish brand recognition. |
| 2 | Consider brand recognition | A conversion franchise may already have an established customer base and brand recognition, while a new build will need to build its brand from scratch. | A conversion franchise may have negative associations with its previous ownership or management. A new build may struggle to attract customers without an established brand. |
| 3 | Evaluate franchisor support | Franchisors provide support in areas such as training, marketing materials, and business model. | A conversion franchise may have limited support from the franchisor if the existing business does not align with the franchisor’s business model. A new build may have limited support from a new franchisor with limited experience. |
| 4 | Consider investment cost | A conversion franchise may have a higher initial investment cost due to the need to renovate and update the existing business, while a new build may have a lower initial investment cost. | A new build may have higher ongoing costs due to the need to build from scratch. A conversion franchise may have unexpected renovation costs. |
| 5 | Evaluate territory rights | Territory rights determine the geographic area in which the franchisee can operate. | A conversion franchise may have limited territory rights due to the existing business location. A new build may have limited territory rights if the franchisor has already established a presence in the area. |
| 6 | Consider the training program | Franchisors provide training programs to ensure franchisees understand the business model and operations. | A conversion franchise may have limited training if the existing business does not align with the franchisor’s business model. A new build may have a limited training program if the franchisor is new and has limited experience. |
| 7 | Evaluate royalty fees | Royalty fees are ongoing payments made to the franchisor for the use of the brand and business model. | A conversion franchise may have higher royalty fees due to the existing brand recognition. A new build may have lower royalty fees due to the need to establish brand recognition. |
| 8 | Consider marketing materials | Franchisors provide marketing materials to ensure consistency in branding and messaging. | A conversion franchise may have outdated marketing materials that need to be updated. A new build may have limited marketing materials due to the need to build from scratch. |
| 9 | Evaluate the business model | Franchisors provide a business model that has been proven to be successful. | A conversion franchise may have a business model that does not align with the franchisee’s goals or values. A new build may have a business model that has not been proven to be successful. |
Contents
- What is a New Build Franchise and How Does it Differ from a Conversion Franchise?
- Understanding the Level of Franchisor Support for New Builds vs Conversions
- Territory Rights: What to Consider When Choosing Between a New Build or Conversion Franchise
- Royalty Fees: How Do They Compare Between New Builds and Conversions?
- Business Models Compared: Which One Works Best for You?
- Common Mistakes And Misconceptions
What is a New Build Franchise and How Does it Differ from a Conversion Franchise?
| Step | Action | Novel Insight | Risk Factors |
|---|---|---|---|
| 1 | Define New Build Franchise | A new build franchise is a franchise that is started from scratch, meaning the franchisee builds a new location and establishes the business in a new market. | Start-up costs for a new build franchise can be higher than for a conversion franchise. |
| 2 | Define Conversion Franchise | A conversion franchise is a franchise where an existing business is converted into a franchise location. | Conversion franchises may have pre-existing brand recognition and customer base. |
| 3 | Start-Up Costs | Start-up costs for a new build franchise can include land acquisition, construction, and equipment costs. | Start-up costs for a conversion franchise may be lower since the location and equipment may already be in place. |
| 4 | Training Programs | New build franchises may require more extensive training programs for franchisees and employees since they are starting from scratch. | Conversion franchises may have existing employees who are familiar with the business and require less training. |
| 5 | Support Services | Franchisors may offer more support services to new build franchises since they are starting from scratch and may require more assistance. | Conversion franchises may require less support services since they may already have established systems in place. |
| 6 | Royalty Fees | Royalty fees for a new build franchise may be higher since the franchisor may need to recoup their investment in the franchisee‘s start-up costs. | Royalty fees for a conversion franchise may be lower since the franchisor may not need to recoup as much investment. |
| 7 | Territory Restrictions | New build franchises may have more flexibility in choosing their location since they are starting from scratch. | Conversion franchises may have territory restrictions since the franchisor may want to avoid cannibalizing existing franchise locations. |
| 8 | Business Model Replication | New build franchises may have more flexibility in adapting the business model to fit the local market. | Conversion franchises may be more limited in adapting the business model since they are replicating an existing model. |
| 9 | Market Saturation Risk | New build franchises may have a higher risk of market saturation since they are entering a new market. | Conversion franchises may have a lower risk of market saturation since they may be entering an existing market with established demand. |
| 10 | Competitive Advantage | New build franchises may have a competitive advantage in offering a unique product or service in a new market. | Conversion franchises may have a competitive advantage in offering a recognized brand and established customer base. |
| 11 | Trademark Protection | New build franchises may need to establish trademark protection for their brand in a new market. | Conversion franchises may already have established trademark protection for their brand. |
| 12 | Franchisor | The franchisor is the company that grants the franchisee the right to use their business model and brand. | The franchisor may have different requirements and support services for new build and conversion franchises. |
| 13 | Franchise Agreement | The franchise agreement is the legal contract between the franchisor and franchisee that outlines the terms and conditions of the franchise relationship. | The franchise agreement may have different terms and conditions for new build and conversion franchises. |
| 14 | Franchise Disclosure Document | The franchise disclosure document is a legal document that provides information about the franchisor and the franchise opportunity. | The franchise disclosure document may have different information for new build and conversion franchises. |
Understanding the Level of Franchisor Support for New Builds vs Conversions
Understanding the Level of Franchisor Support for New Builds vs Conversions
| Step | Action | Novel Insight | Risk Factors |
|---|---|---|---|
| 1 | Determine the type of franchise | A new build franchise is a brand new location, while a conversion franchise is an existing business that is converted into a franchise. | New build franchises may require more financial investment, while conversion franchises may have pre-existing issues that need to be addressed. |
| 2 | Evaluate franchisor support | Franchisors may offer different levels of support for new builds vs conversions. | Lack of support can lead to a higher risk of failure for the franchisee. |
| 3 | Look for training programs | Franchisors should offer training programs for both new builds and conversions. | Inadequate training can lead to poor performance and low customer satisfaction. |
| 4 | Assess marketing assistance | Franchisors should provide marketing assistance to help franchisees promote their business. | Poor marketing can lead to low customer traffic and revenue. |
| 5 | Consider site selection guidance | Franchisors should offer guidance on selecting a location for both new builds and conversions. | Poor location can lead to low customer traffic and revenue. |
| 6 | Evaluate financial assistance | Franchisors may offer financial assistance for both new builds and conversions. | Lack of financial assistance can lead to difficulty securing funding and higher risk of failure. |
| 7 | Look for operational support | Franchisors should provide operational support for both new builds and conversions. | Inadequate operational support can lead to poor performance and low customer satisfaction. |
| 8 | Assess brand recognition | Franchisors should have a strong brand recognition for both new builds and conversions. | Poor brand recognition can lead to difficulty attracting customers and lower revenue. |
| 9 | Consider business model adaptation | Franchisors should be willing to adapt their business model for both new builds and conversions. | Inflexibility can lead to difficulty operating the franchise and lower revenue. |
| 10 | Evaluate legal considerations | Franchise agreement terms and conditions should be fair and reasonable for both new builds and conversions. | Unfair terms can lead to legal disputes and financial loss. |
| 11 | Assess risk assessment | Franchisors should conduct a risk assessment for both new builds and conversions. | Lack of risk assessment can lead to unexpected issues and higher risk of failure. |
| 12 | Look for return on investment (ROI) | Franchisors should provide a clear understanding of the expected ROI for both new builds and conversions. | Lack of ROI information can lead to difficulty securing funding and higher risk of failure. |
Territory Rights: What to Consider When Choosing Between a New Build or Conversion Franchise
| Step | Action | Novel Insight | Risk Factors |
|---|---|---|---|
| 1 | Conduct market analysis | Consider demographics, competition, and existing customer base | Failure to accurately assess the market can lead to poor performance and financial loss |
| 2 | Evaluate brand recognition | Determine if the brand has a strong reputation in the area | Choosing a brand with low recognition can make it difficult to attract customers |
| 3 | Assess start-up costs | Compare the costs of a new build franchise versus a conversion franchise | Underestimating start-up costs can lead to financial strain |
| 4 | Review royalty fees | Understand the percentage of revenue that must be paid to the franchisor | High royalty fees can impact profitability |
| 5 | Evaluate training and support | Determine the level of training and support provided by the franchisor | Inadequate training and support can lead to poor performance |
| 6 | Consider marketing and advertising support | Determine the level of marketing and advertising support provided by the franchisor | Lack of marketing and advertising support can make it difficult to attract customers |
| 7 | Review franchisee obligations | Understand the responsibilities and obligations of the franchisee | Failure to meet obligations can result in termination of the franchise agreement |
| 8 | Assess territorial restrictions | Determine if there are any territorial restrictions on the franchise agreement | Limited territory can impact growth potential |
| 9 | Review renewal options | Understand the options for renewing the franchise agreement | Limited renewal options can impact long-term profitability |
When choosing between a new build or conversion franchise, it is important to conduct a thorough market analysis to determine the potential success of the franchise in the area. This includes evaluating demographics, competition, and existing customer base. Additionally, it is important to assess the level of brand recognition in the area, as choosing a brand with low recognition can make it difficult to attract customers.
Comparing start-up costs and royalty fees is also crucial, as underestimating these costs can lead to financial strain and impact profitability. It is also important to evaluate the level of training and support provided by the franchisor, as inadequate support can lead to poor performance.
Marketing and advertising support should also be considered, as lack of support can make it difficult to attract customers. Franchisee obligations should be reviewed to ensure that the responsibilities and obligations are manageable. Territorial restrictions should also be assessed, as limited territory can impact growth potential.
Finally, it is important to review renewal options to understand the options for renewing the franchise agreement. Limited renewal options can impact long-term profitability. By considering these factors, franchisees can make an informed decision when choosing between a new build or conversion franchise.
Royalty Fees: How Do They Compare Between New Builds and Conversions?
| Step | Action | Novel Insight | Risk Factors |
|---|---|---|---|
| 1 | Understand the difference between conversion and new build franchises. | Conversion franchises are established businesses that are converted into franchises, while new build franchises are built from scratch. | The risk of investing in a conversion franchise is that the business may have pre-existing issues that could affect its success as a franchise. |
| 2 | Consider the franchisor‘s royalty fee structure. | Royalty fees are ongoing payments made by franchisees to franchisors for the use of their brand, marketing support, training programs, and ongoing support services. | The risk of investing in a new build franchise is that the franchisor may charge higher royalty fees to recoup their initial investment in building the business. |
| 3 | Evaluate the franchisor’s brand recognition. | Franchisees benefit from the franchisor’s established brand recognition, which can lead to increased customer traffic and higher profit margins. | The risk of investing in a conversion franchise is that the business may not have strong brand recognition, which could affect its ability to attract customers. |
| 4 | Review the franchisor’s marketing support. | Franchisors typically provide marketing support to franchisees, which can include advertising, promotional materials, and social media campaigns. | The risk of investing in a new build franchise is that the franchisor may not have established marketing support systems in place, which could affect the franchisee’s ability to attract customers. |
| 5 | Assess the franchisor’s training programs. | Franchisors typically provide training programs to franchisees, which can include initial training, ongoing training, and support from a dedicated franchise support team. | The risk of investing in a conversion franchise is that the business may not have established training programs in place, which could affect the franchisee’s ability to operate the business successfully. |
| 6 | Consider the franchisor’s ongoing support services. | Franchisors typically provide ongoing support services to franchisees, which can include access to a dedicated franchise support team, regular check-ins, and ongoing training. | The risk of investing in a new build franchise is that the franchisor may not have established ongoing support services in place, which could affect the franchisee’s ability to operate the business successfully. |
| 7 | Review the franchise disclosure document (FDD). | The FDD is a legal document that franchisors are required to provide to potential franchisees. It contains information about the franchisor’s business model, financial performance, and legal obligations. | The risk of investing in a franchise is that the FDD may contain information that could affect the franchisee’s decision to invest in the business. |
| 8 | Consider the term of the agreement and renewal options. | Franchise agreements typically have a set term, after which the franchisee may have the option to renew the agreement. | The risk of investing in a franchise is that the franchisee may not have the option to renew the agreement, which could affect their ability to continue operating the business. |
| 9 | Evaluate the territory rights. | Franchise agreements typically include territory rights, which give the franchisee exclusive rights to operate the business within a specific geographic area. | The risk of investing in a franchise is that the franchisee’s territory rights may be limited, which could affect their ability to attract customers and generate revenue. |
| 10 | Consider the potential profit margins. | Franchisees typically benefit from established business models and support systems, which can lead to higher profit margins. | The risk of investing in a franchise is that the franchisee’s profit margins may be lower than expected due to factors such as competition, market conditions, and operating costs. |
Business Models Compared: Which One Works Best for You?
| Step | Action | Novel Insight | Risk Factors |
|---|---|---|---|
| 1 | Identify your customer segments | Understanding your target audience is crucial for developing a successful business model | Failing to accurately identify your customer segments can lead to ineffective marketing and low sales |
| 2 | Determine your value proposition | Your value proposition should clearly communicate the unique benefits your business offers to customers | A weak value proposition can make it difficult to stand out in a crowded market |
| 3 | Conduct market research | Market research can help you identify trends, assess demand, and understand your competition | Failing to conduct market research can lead to poor decision-making and wasted resources |
| 4 | Determine your cost structure | Understanding your costs is essential for setting prices and ensuring profitability | Failing to accurately estimate costs can lead to financial difficulties and even bankruptcy |
| 5 | Identify key activities and resources | Identifying the key activities and resources needed to deliver your value proposition can help you optimize your operations | Failing to identify key activities and resources can lead to inefficiencies and poor performance |
| 6 | Determine your channels of distribution | Choosing the right channels of distribution can help you reach your target audience effectively | Failing to choose the right channels of distribution can limit your reach and impact |
| 7 | Consider partnerships and collaborations | Partnerships and collaborations can help you leverage the strengths of other businesses and expand your reach | Failing to choose the right partners or collaborations can lead to conflicts and negative outcomes |
| 8 | Determine your competitive advantage | Understanding your competitive advantage can help you differentiate yourself from competitors and attract customers | Failing to identify your competitive advantage can make it difficult to stand out in a crowded market |
| 9 | Consider scalability | Planning for scalability can help you grow your business and increase profitability over time | Failing to plan for scalability can limit your growth potential and lead to missed opportunities |
| 10 | Determine your profit margins and ROI | Understanding your profit margins and ROI can help you make informed decisions about pricing and investment | Failing to accurately estimate profit margins and ROI can lead to financial difficulties and poor decision-making |
| 11 | Consider the franchise business model | The franchise business model can offer a proven system for success and access to established brand recognition | Franchising can be expensive and may limit your flexibility and control |
| 12 | Consider the conversion franchise model | The conversion franchise model can offer a lower cost of entry and the opportunity to leverage existing assets and resources | Conversion franchising may require significant changes to your existing business and may not be suitable for all businesses |
Common Mistakes And Misconceptions
| Mistake/Misconception | Correct Viewpoint |
|---|---|
| Conversion franchises are always cheaper and easier to start than new builds. | While conversion franchises may have lower initial costs, they can also come with additional expenses such as renovations or upgrades to meet the franchisor‘s standards. Additionally, converting an existing business into a franchise may require more time and effort than starting from scratch with a new build. It is important to carefully evaluate all costs and requirements before deciding which option is best for your situation. |
| New builds offer more flexibility in terms of location and design. | While it is true that starting from scratch allows for greater control over the physical aspects of the business, this does not necessarily mean that new builds are always better than conversions in terms of location or design. Many franchisors have specific guidelines for site selection and building design that must be followed regardless of whether you choose a conversion or new build approach. It is important to consider these factors when making your decision rather than assuming one option will automatically provide more flexibility than the other. |
| Converting an existing business into a franchise means you don’t need any prior experience in running a franchise operation. | While having experience running a similar type of business can certainly be helpful when converting to a franchise model, it does not guarantee success without proper training and support from the franchisor. Franchise systems often have unique operating procedures, marketing strategies, and customer service standards that must be learned in order to effectively run the business under their brand name. Before considering conversion as an option, make sure you understand what kind of training and ongoing support will be provided by the franchisor so you can properly prepare yourself for this transition. |
| Starting from scratch with a new build means there are no pre-existing issues or challenges to deal with. | Even if you’re starting fresh with no previous ownership history at your chosen location, there may still be unforeseen challenges that arise during the construction or early operation phases of your business. Additionally, new builds may take longer to get up and running than conversions due to permitting and construction timelines. It is important to have a solid plan in place for dealing with any potential issues that may arise regardless of which approach you choose. |