Franchises have become a very popular choice for businesses to expand their operations. Their easy capital pricing options also make things very easy for potential investors. That is why they are often great success if done right. However, there are more than a few franchise-operating business models out there. Here, we are going to look at two of the most popular ones – FOCO and FOFO. This will help underline the major differences between the two and help you make a good investment decision for 2021:
The 5 Biggest Differences Between FOCO and FOFO
In the FOCO model, the franchisee owns the business while the company operates it. This means that the franchise investor gives a one-time lump sum payment based on which they establish the business. The franchiser handles all the legalities and paperwork based on the money given by the franchisee. This lends a professional business approach to the franchise and also takes the day to day business running out of the franchisee’s hands. In contrast, the FOFO model requires the franchisee to handle all daily processes. So, the investor has to handle the everyday management tasks including the establishment purchase/rent and upkeep, employee retention and other processes.
2. Running Cost
The primary benefit of using a FOCO model is that the company offering the franchise investment option hands everyday expenses. So, the franchisee’s daily involvement is not required. On the other hand, FOFO models for franchises require everyday oversight and this can lead to operational redundancies. Since they are not likely to be familiar with the various daily expenses as well as their recordkeeping, running costs can get out of hand. Worse yet, improper accounts management can cause financial liabilities as well as legal ones. This will obviously adversely affect the brand reputation of the franchiser and may create similar problems for them as well. So, the FOCO model offers a better daily working solution for both franchisers and investors alike.
3. Profit Share
Both FOCO and FOFO models have their positives for establishing franchises. The key difference for profit sharing is that the FOCO model takes the liability off the investor. They get a share of the profits made by the company-owned cloud kitchen. This ensures the investor gets a steady source of income. Unlike this process, the FOFO model offers a potentially higher profit share to the investors. However, this is predicated on their business management proficiency. This is beneficial for only those who are willing to invest time and effort into churning out a high profit from their franchise.
Marketing activities are an essential part of any company’s operational cycle. With the FOCO model, the franchisee does not have to handle the marketing and promotional activities. For some cloud kitchens, getting involved in marketing activities can help bolster sales and increase profit. However, the FOFO model will require the franchisee to handle all businesses activities including marketing and promotion. This puts the burden of effort completely on the franchisee and they may not have good experience of it. Naturally, this would reduce the effectiveness of the marketing and promotion activities.
The long-term success of a company depends on the practical adaptability of a business. Franchises have the same story and if the operator does not have the right skill, they can lose business quickly. This problem is easily solved by the FOCO model which does not require the franchisee’s involvement. But with the FOFO model, the franchisee will need to invest time into the business. Otherwise, its long-term success is not certain.
Which FOCO Food and Beverage Franchise Should You Invest in 2021?
The Rolling Plate has one of the best FOCO model stories in the entire Indian FnB industry. Since starting in 2019, we have opened up 12 franchises and are verging on new establishments every new month. Naturally, our success has drawn a lot of attention and we are expecting an unprecedented interest in our franchise offerings in 2021. if you are looking for the best FnB industry investment opportunities in the market, TRP is the right one for you!