The Local Impact of Franchise Businesses

Posted on November 13, 2023 in Blog

Locally owned franchises are valuable sources of steady employment, tax revenue and economic resilience. Especially during economic downturns, franchises have provided localized insulation from unemployment and offered communities of all sizes increased access to healthcare, paid vacation and other benefits compared to non-franchise businesses.

Get into the small-town economics of franchising and why patronizing a franchise business is still supporting local!

Franchise vs. Non-franchise: What’s the Difference?

In terms of day-to-day operations, franchises and small businesses are nearly identical. Both rely on the local workforce, pay local, state and federal taxes and donate to important causes in the community. While some franchise locations may be corporately owned and operated, most franchise licenses are held by sole proprietors utilizing a DBA, or “doing business as” under their own business’s name.

Franchises differ from non-franchise entities only in their contractual agreement to use a nationally owned franchise brand’s name, systems and resources.

Is a Franchise a Small Business?

As long as a locally-owned franchise meets the basic definition of a small business, it’s about as local as it gets! Business size is often measured by employee count, number of locations, total revenue, or a mix of factors.

The Census Bureau defines small businesses as:

Having fewer than 250 employees total (think 250 employees working at 2-3 franchise locations)
Having fewer than 20 employees per location
Less than $5 million in annual revenue
Sole proprietorship (either one person or one commercial entity)
The proprietor pays all taxes through the business itself

There is certainly some gray area around these criteria, but the broad definition includes a substantial share of the 730,000 locally-owned franchises in the US.

Local Impact: Franchise vs. Local Business

The establishment, success and continued growth of any small business is a net positive for the local community. A recent study by Oxford Economics shows that franchises may have a larger local impact than their independent neighbors.

Higher employment rates – Franchises create 2.3 times as many jobs as similarly-sized non-franchise businesses.
Increased (taxable) revenue – Franchises generate 1.8 times more taxable revenue than independent businesses.
Higher employee pay – Franchise employees earn up to 3.4% more and have increased access to health insurance (65%) and paid leave (76%).

Higher pay, competitive benefits and higher employment rates increase the amount of money in local circulation. Especially during tight labor markets, better pay at franchises raises the bar across local industries, improving employee and family outcomes.

Franchises Are Safer Investments for Owners, Too

The franchise business model is equally beneficial for owners. Historically, franchises tend to have better success rates, be more profitable and weather economic downturns better than non-franchise businesses. If you are researching a local franchise opportunity, consider some benefits:

Franchises Are More Profitable. While operating profit margins vary by season, industry and market, aggregate franchise profitability statistics suggest franchise businesses are more profitable than their independent peers. A Census report calculated the average sales per franchise establishment was $3.5 million per annum, compared to $2.3 million for non-franchise companies. Even calculated for a 3-5% licensing (sometimes called royalty) fee, franchises generate more revenue.

Franchise economics, built largely on lowering material and operating costs through economies of scale, may also reduce day-to-day input costs through negotiated pricing. The national brand may negotiate lower shipping fees for parcels or more competitive pricing on parts, ingredients or software.

Franchises Are Resilient. A comparison of franchise and independent small business survival rates shows that franchises are more likely to be in business than non-franchise businesses after five years. No new venture is guaranteed, however. Younger franchise organizations may cost less to license but don’t deliver the same value as more established companies. The worst-performing franchises have failure rates above 20%. Two, Experimac and Dental Fix RX, had SBA loan default rates over 65%.

Franchises Are More Inclusive. The franchise business model makes small business ownership more accessible to women and people of color, leading to more success. Franchise backing can open doors to investment capital, lower lending rates and business development programs. Black-owned franchises earn more than twice as much as other Black-owned businesses, contributing to consistently higher success rates across industries.

Additionally, 32% of franchisee owners say they would not have started a business without franchise support, a sentiment more common among female owners. It’s no wonder so many small business owners are attracted to franchising; it works.

We Know the Franchise Industry

For over 25 years, Oneupweb has specialized in supporting franchise organizations to grow. As a fully integrated marketing agency, we leverage teams of designers, writers, developers and strategists to overcome your marketing challenges. See what experience and industry expertise can do for your organization; get in touch today or call 231-922-9977 to get started.