The Importance of Establishing Buying Power When Starting a Franchise
Suppliers are the lifeblood in the franchise industry. They provide the vast amount of material needed to run operations at each franchise location.
Because the franchisor develops the supply chain for numerous locations, establishing buying power is essential for emerging franchise brands. Buying power allows you to purchase goods at a discounted price because of the order volume and frequency necessary to meet the needs of all the franchise locations.
But, effective buying power is not something that is just given to franchisors. Receiving a nice discount depends a lot on the relationship established between the franchisor and suppliers. A good relationship extends beyond buying power and will help your brand grow.
Good Suppliers are Reliable
First, you will have to find a reliable supplier. Any discounts will not do an emerging franchise any good if franchisees experience a lapse in deliveries or if supplies arrive late or damaged. If customers do not receive your product when they want it, the brand’s reputation will take a hit. Unreliability will affect the bottom line and stunt the brand’s growth.
Reliability comes in many forms separate from on-time deliveries. Other ways suppliers can affect your franchise include:
- Quality of goods – Poor quality will result in less desirable products or services. High quality products boost customer satisfaction and brand reputation, which spurs growth.
- Product development – Suppliers work with many companies in the franchise industry and in your category. They are able to share their knowledge, which may help you develop your franchise’s next offering.
- Competitiveness – Good pricing, high quality, reliability, knowledge of the industry and more can give your franchise the edge over competitors.
- Financing – It’s not uncommon for suppliers to provide financing in the form of loans, postponed debt, payment installments, or even an investment in a company – especially when brands they serve are growing or are struggling. However, a franchisor must be in good standing with the supplier to be considered for financing assistance.
How to Develop a Franchisor-Supplier Relationship
When you have found reliable suppliers, forge a strong working relationship with them based on honest communication, clear expectations and needs, and courtesy. It’s important to begin this right away because, as a new franchisor, you likely will not be afforded the same level of care as longtime customers. But, eventually the relationship will pay greater dividends, such as those mentioned above.
There are four things franchisors need to do to nurture the relationship with suppliers:
- Pay on time – Not being late with payments for orders goes a long way toward goodwill. If you have negotiated payment terms in your favor, you need to uphold your end of the bargain. Attempting to change the terms after placing an order can sour the relationship. Remember, a reliable supplier can help you grow your franchise, so it will only benefit you to keep them in your corner.
- Do not put in last minute orders – Give suppliers plenty of time when placing orders. In order to help you understand turnaround times for your suppliers, learn their production schedules and needs. This will help you develop your own lead times.
- Get personal – Be sure to invite supplier representatives to company functions, such as picnics and holiday parties. Include them in strategy meetings sometimes; they may be able to offer useful insight.
- Communicate – Keep suppliers abreast of what’s happening in your franchise, including changes in personnel and product development.
While it’s important to develop a good relationship with suppliers, you are also allowed to be tough when it comes to making sure suppliers understand your needs and meet the terms of agreements. It’s also OK to make sure they stay competitive by letting them know another supplier offers better pricing. You have a business to run, after all, and receiving orders on time, unspoiled or undamaged, and at a good price – established through buying power – will help your franchise to grow.
The goal of buying power is to reduce costs to your franchisees, not to pad your own pockets as a franchisor. The discounts negotiated should be a straight pass through savings for your franchise system. While rebates and other kickbacks may be offered, it is our position and strong recommendation that a franchisor should not take rebates or other financial incentives unless their involvement in the deal is adding value that could not otherwise be contrived between the supplier and franchisee.
As franchise advisors and consultants, Winmark Franchise Partners can help you establish buying power and provide more insight into how to use it. As a franchise incubator, we have the knowledge and capital to get your brand on the right track. If you are interested in franchise growth or starting a franchise business visit our website or contact us at (866) 994-5191.