This article was written by Shawn Saraga, otherwise known as Mr. Franchise, who is the Founder of The Franchise Academy. Shawn is the author of an upcoming book The Franchise Toolbox as well as the creator of the Choose the Right Franchise course.
One of the most common mistakes I see franchisees make is becoming too focused on reducing costs, while losing sight of the activities that actually drive profitability.
Over the past 20 years, I’ve worked with more than 1,000 franchisees across a wide range of sectors. Food and drink, retail, fitness, education and service-based businesses all have their own challenges, but the same pattern often appears. A franchisee realises they can save a little money by sourcing products from a different supplier, buying from a local wholesaler or shopping around each month for the lowest available price.
On paper, it can look like sensible business management. In practice, it often creates more problems than it solves.
To understand why, it helps to start with Cost of Goods Sold, commonly known as COGS. This refers to the direct costs involved in producing the products or services you sell. In a restaurant, that might include food, packaging, drinks and ingredients. In retail, it includes stock and merchandise. Managing COGS matters because it directly affects gross profit and, ultimately, the bottom line.
Every strong franchise system pays close attention to COGS. The best franchisors negotiate hard on behalf of their franchisees and use the collective purchasing power of the wider network. Instead of one location buying a few thousand pounds’ worth of product each month, the franchise system may be purchasing millions of pounds’ worth annually.
Why economies of scale matter
Large purchasing groups can negotiate lower prices, better payment terms, stronger service agreements and more reliable supply than an individual operator could usually secure alone. They may also agree annual contracts that help lock in pricing and reduce volatility. That gives franchisees more confidence when forecasting costs and means they spend less time worrying about supplier negotiations.
Compare that with an independent operator who spends hours each week chasing discounts, comparing suppliers and switching vendors whenever someone offers a slightly lower price. At first glance, they may appear to be saving money. But are they really?
What many franchisees fail to calculate is the value of their own time.
Every hour spent negotiating with suppliers, comparing invoices, resolving delivery issues or sourcing alternative products is an hour that is not being spent serving customers, coaching staff or driving local marketing. That time could be better used building community relationships and increasing sales. Most franchisees dramatically underestimate the opportunity cost of distraction.
Let’s say a franchisee saves £200 in a month by finding a cheaper supplier. That sounds like a win until you realise they spent six hours researching options, managing the transition, training staff on new products and dealing with inconsistencies in supply.
What if those same six hours had been spent developing a local marketing campaign that brought in ten new customers a day? What if they had been spent coaching staff to improve customer experience and encourage repeat visits? What if they had gone into building relationships with local schools, business groups, sports clubs or community organisations?
The return on those activities is often far greater than the saving generated by squeezing another percentage point from product costs. This is one of the hidden advantages of a strong franchise system.
The biggest hidden cost in franchising? Your time
Good franchisors do not just negotiate better prices. They simplify decision-making. They remove hundreds of small choices that can consume a business owner’s energy and attention. They provide approved suppliers, standardised products, established quality controls and predictable pricing structures. As a result, franchisees can focus on what actually grows the business: revenue.
Too often, operators become fixated on cost reduction because it feels easier and more controllable than sales growth. It is usually simpler to cut expenses than it is to attract new customers. The problem is that there is a limit to how much you can cut. Push too far and quality suffers, consistency declines, customer satisfaction drops and sales begin to weaken.
There is no comparable limit on how much revenue can grow when an owner is focused on delivering a great customer experience and building demand in their local market.
That is why consistency matters. When a franchise system establishes approved suppliers and annual purchasing agreements, it creates stability. Products arrive when expected. Quality remains consistent. Customers receive the same experience each time they visit. Franchisees can forecast margins more accurately, and operators can spend their time where it creates the greatest return.
Of course, franchisors should continue to review supplier relationships and negotiate better pricing where possible. That responsibility belongs at system level, where purchasing decisions can benefit the whole network.
However, individual franchisees who constantly look for exceptions, alternative vendors or one-off deals often underestimate the operational complexity they create for themselves and for the wider system. What begins as a small attempt to save money can quickly become inconsistency, quality issues, stock challenges and customer dissatisfaction.
I’ve seen operators spend enormous amounts of energy trying to save pennies while ignoring opportunities to generate pounds. The phrase I like to use is “penny smart, pound foolish.” Being penny smart means paying attention to costs and operating efficiently, which is important. Being pound foolish means becoming so focused on small savings that you lose sight of the bigger picture.
The most successful franchisees I’ve worked with understand that profitability is not achieved by obsessing over every penny. It is achieved by following the system, leveraging the buying power of the brand, delivering an exceptional customer experience and focusing relentlessly on growing revenue.
Use the time that creates to invest in your people, your customers and your community. The franchisees who win are not usually the ones who buy the cheapest products. They are the ones who spend the most time building the strongest businesses.