What is franchising
Franchising is a way of doing business based on leasing a trademark and doing business under the name of the leased trademark according to a certain business model. The participants in the business interaction are the franchisor (trademark owner) and the franchisee (tenant). Both parties are independent legal entities, financially independent from each other.
The owner of the brand on certain conditions transfers to the franchisee the right to use their own industrial and intellectual property: trademark, innovative developments, the method of doing business, the right to sell goods and services under the name of the brand. Duties of the franchisee under this model:
- conducting business according to the franchisor's concept;
- payment to the franchisor of monetary remuneration (royalty, lump-sum payment) for the duration of the franchise agreement.
A franchise is
A franchise is a certain complex object around which the contractual relations of the franchisee and the franchisor arise. The concept of franchise also includes mentor support from the franchisor at the initial stage of business start-up: opening a physical point of sale, restaurant, office, launching the production process, etc.
For the right to use production and intellectual property, the franchisee pays the franchisor a financial reward: an initial fee and periodic payments in the form of a percentage of profit or an agreed-upon fixed amount.
How franchising works
Franchising is a mutually beneficial model of cooperation. The franchisor receives profit in the form of royalty payments, and the franchisee has the opportunity to launch a profitable business without experience and capital investment in branding. To become a franchisee, you must find a franchise seller and become a franchisee. The criteria for selecting companies that sell franchises are the basic terms of cooperation, the amount of the initial payment and the term of the contract.
At the stage of selecting a franchise one should gather as much information about the franchisor as possible, compare the minimum requirements of the brand owner and one's own capabilities. To learn more about the franchise terms and conditions, you can use the brand owner's information line or contact professional analysts. It is important to analyze the profitability of the proposal and compare possible risks, the minimum necessary financial investment and foresee setbacks.
Only after a thorough assessment of opportunities and prospects, can you move on to the stage of negotiations and the conclusion of an agreement with the franchisor.
Advantages and disadvantages of franchising
Franchising enjoys enormous popularity among entrepreneurs around the world: more than 17 thousand successful and popular brands have sold the right to use their trademark to 1.4 million enterprising businessmen. Such popularity of this business model is due to the many advantages: the franchisor receives compensation for the granted right, and the franchisee receives a ready-made business model, saving costs and efforts on market exploration, branding audit and market research, development of a business plan. All that is needed to make a profit is to follow the outlined plan, developed algorithm and conditions of activity.
Advantages of franchising:
Ready-made business plan. Buying a franchise, the franchisee receives a clear step-by-step instruction on how to build business processes and achieve their goals.
The name of the brand, known in the market. As a rule, a franchise is an offer from popular and well-reputed brands, which have long earned the trust and love of consumers.
Savings on design services. Included with the franchise, a tenant receives a complete guide to branding business and corporate identity, which is fully consistent with the mission of brand positioning.
Ready-made advertising campaigns. Responsibility for the preparation of promotional materials (for online and offline promotion) is entirely the responsibility of the franchisor. He deals with the development of the concept, the election of forms and channels of advertising (website, social networks, radio and television advertising).
Assistance in the selection and training of employees. Staff recruitment and testing, training of managers and sales specialists are tasks that the franchisor can take over completely or provide support in their implementation.
Selection of suppliers. In addition to the franchise agreement, the tenant receives a list of reliable suppliers, cooperation with which is confirmed by time and the successful implementation of contractual obligations.
Standardization of business processes. To organize the effective work of all departments of the new company, it is enough to follow the provided instructions and develop the professional skills of employees.
Types of franchising
Franchising is classified according to the main types of activities:
Product franchising. According to this type, the owner of the trademark, having received together with the sale of the franchise a new point of sale, sells through this point its own goods.
Manufacturing franchising. The franchisor company provides the franchisee with part of the production technology and sells the ability to independently manufacture and sell goods under the trademark.
Service franchising. A franchisee acquires the right to open a service point under the franchisor's trademark (equipment repair service, fitness center, cafe, restaurant, training center).
Mixed franchising. This is a combined model that combines the features of product, production, and service franchising.