LOW RISK HIGH REWARD

Traditionally, businesses use franchising as a medium of expansion as it is less capital intensive and also results in faster expansion. Investors are keen on buying franchises as they get a tried-and-tested business model for themselves and therefore, the ‘risk’ of starting a new business is mitigated. In a nutshell, both businesses and investors are drawn towards franchising as it helps them minimise risk and maximise returns.

Partial Franchising

For example, a brand called GPS Gaadi, which sells GPS tracking devices along with a number of associated services, is targeting trucking companies with 30 or more trucks in their fleet as their main customers. While making a sales pitch to them, they realised that most of these customers need to be educated about the advantages of the product; therefore, human intervention is of utmost requirement to convert leads into sales. However, they cannot grow their sales force beyond a certain threshold in order to keep their HR cost in check. Hence, they have decided to franchise only the business development and customer service divisions of their company. For each sale made by the franchise, a certain percentage will go to GPS Gaadi and rest of the amount will belong to the franchise.

Another company called GreenLife Insurance (P) Ltd. (GIBL) has been quick in responding to the recent IRDAI ruling by which insurance broking firms may recruit POS agents who may sell previously underwritten policies of multiple insurance companies (unlike agents who are allowed to sell policies of only one company). They seek franchise-like model of only business development part of their operations. The franchise is supposed to only manage these POS agents and provide necessary infrastructure to them. In return, they may earn hefty margins on each policy sold by the POS agents.

Growth Opportunities

Such low-risk, high-reward franchising opportunities help investors mitigate multiple risks such as rising real estate costs, humungous working capital requirements, and bandwidth to manage human resources. Conclusively, this new wave of low-risk, high-reward investment options in the franchising world is likely to become the most popular proposition for investors in coming years.

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