What are some advantages and disadvantages of franchising?
Ten advantages of franchising
- The risk of business failure is reduced by franchising. ...
- Products and services will have already established a market share. ...
- You can use a recognised brand name and trade mark. ...
What are the costs associated with franchising?
While costs range from less than $10,000 to upwards of $5 million, the majority of franchises run from about $50,000 or $75,000 to about $200,000 to get started.
What to consider before franchising?
When factoring your initial and ongoing investment in your new franchise, consider the following:
- How much will you need to cover the initial startup fees (e.g., real estate, licensing, equipment)?
- How much liquid capital do you need to maintain to cover the franchise until you break even or see a positive return on investment?
- What are the ongoing franchise fees?
- What are the royalty expectations?
What are the benefits of franchising?
Top 5 Benefits to Franchising Your Business
- Less Capital Investment Needed. Once your business is successful, it is natural to want to look into expanding it. ...
- Dedicated Business Partners. It makes sense that a business partner is going to feel more invested than just an employee because their own money is on the line.
- Rapid Expansion. ...
- A Less Risky Move. ...
- Strong Profit maker. ...
What does it mean to be a franchisee?
As a franchisee you own the assets of your company, which you have chosen to invest in someone else's brand and operating system and ongoing support. You own the assets of your company, but you are licensed to operate someone else's business system.
What is a franchising network?
Franchising is a network of interdependent business relationships that allows a number of people to share: 1 A brand identification 2 A successful method of doing business 3 A proven marketing and distribution system
What is a network of interdependent business relationships that allows a number of people to share?
Franchising is a network of interdependent business relationships that allows a number of people to share:
What is a franchising strategy?
Franchising is a business strategy for getting and keeping customers. It is a marketing system for creating an image in the minds of current and future customers about how the company's products and services can help them. It is a method for distributing products and services that satisfy customer needs.
What happens if you buy a franchise?
If you think you "bought" a franchise, you become an "owner" and begin to think and act like an owner. You will want to change the system because of your needs, you will wonder what you are paying the royalty for, and you will begin thinking of other franchisees as your competitors.
What is business relationship?
The business relationship is a joint commitment by all franchisees to get and keep customers. Legally you are bound to get and keep them using the prescribed marketing and operating systems of the franchisor.
What is franchising in business?
A franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system. Technically, the contract binding the two ...
What is franchising relationship?
Franchising Is About Relationships. Many people, when they think of franchising, focus first on the law. While the law is certainly important, it is not the central thing to understand about franchising. At its core, franchising is about the franchisor’s brand value, how the franchisor supports its franchisees, ...
Why is it important to select a franchisor that routinely and effectively enforces system standards?
This is important to you as enforcement of brand standards by the franchisor is meant to protect franchisees from the possible bad acts of other franchisees that share the brand with them. Since customers see franchise systems as a branded chain of operations, great products and services delivered by one franchisee benefits the entire system. The opposite is also true.
What does a franchisor do?
The franchisor provides the franchisee with franchising leadership and support, and exercises some controls to ensure the franchisee’s adherence to brand guidelines. In exchange, the franchisee usually pays the franchisor a one-time initial fee (the franchise fee) and a continuing fee (known as a royalty) for the use of ...
What is business format franchise?
In a business format franchise, the franchisor provides to the franchisee not just its trade name, products and services, but an entire system for operating the business.
Why are franchisors important?
Great franchisors provide systems, tools and support so that their franchisees have the ability to live up to the system’s brand standards and ensure customer satisfaction. And, franchisors and all of the other franchisees expect that you will independently manage the day-to-day operation of your businesses so that you will enhance the reputation of the company in your market area.
What does a franchisee receive from a franchisor?
The franchisee generally receives site selection and development support, operating manuals, training, brand standards, quality control, a marketing strategy and business advisory support from the franchisor. While less identified with franchising, traditional or product distribution franchising is larger in total sales than business format ...
What Is a Franchise?
A franchise is a type of license that grants a franchisee access to a franchisor's proprietary business knowledge, processes, and trademarks , thus allowing the franchisee to sell a product or service under the franchisor's business name . In exchange for acquiring a franchise, the franchisee usually pays the franchisor an initial start-up fee and annual licensing fees .
What does a franchisor receive?
Finally, the franchisor receives ongoing royalties or a percentage of the operation's sales. A franchise contract is temporary, akin to a lease or rental of a business.
What Are the Risks of Franchises?
Disadvantages include heavy start-up costs as well as ongoing royalty costs. By definition, franchises have ongoing fees that must be paid to the franchisor in the form of a percentage of sales or revenue. This percentage can range between 4.6% and 12.5%, depending on the industry.
How Does the Franchisor Make Money?
Typically, a franchise agreement includes three categories of payment to the franchisor. First, the franchisee must purchase the controlled rights , or trademark , from the franchisor in the form of an upfront fee. Second, the franchisor often receives payment for providing training, equipment, or business advisory services. Finally , the franchisor receives ongoing royalties or a percentage of the operation's sales.
What is franchise contract?
Franchise Basics and Regulations. Franchise contracts are complex and vary for each franchisor. Typically, a franchise agreement includes three categories of payment to the franchisor. First, the franchisee must purchase the controlled rights, or trademark, from the franchisor in the form of an upfront fee.
How long does a franchise contract last?
It does not signify business ownership by the franchisee. Depending on the contract, franchise agreements typically last between five and 30 years, with serious penalties if a franchisee violates or prematurely terminates the contract.
When a business wants to increase its market share or geographical reach at a low cost, it may franchise its product?
When a business wants to increase its market share or geographical reach at a low cost, it may franchise its product and brand name. A franchise is a joint venture between franchisor and franchisee. The franchisor is the original business. It sells the right to use its name and idea. The franchisee buys this right to sell the franchisor's goods or services under an existing business model and trademark .
What does franchising mean?
The word "franchising" is derived from the French verb, franchir, which means to make free or give liberty to, and often referred to freedom from some restriction, servitude or slavery. Franchising can be divided into two major categories: business format franchising and product / trade name format franchising.
Why is franchising important?
Franchising plays an important role in providing employment to individuals without a higher education or specialized skills.
What is social franchising?
Social franchising is the application of the business format franchising model to address societal issues such as joblessness, drug use, poverty, disease, sanitation, access to potable water, lack of education, etc. While still an emerging business model, social franchising has tremendous potential to contribute to emerging economies in Africa, ...
What is business format franchising?
Business format franchising is defined by the International Franchise Association (IFA) as a marketing method in which the owner of a product or service, known as the "franchisor," offers the right to operate and manage his product and service to others, the "franchisees," in return for a fee and ongoing royalty payments.
How much does it cost to start a franchise?
Typical startup costs range from $25,000 to over $3 million.
Where is Rosenberg International Franchise Center located?
The association is based in Washington, D.C. The Rosenberg International Franchise Center at the University of New Hampshire maintains the largest financial database of US and international publicly listed franchise companies.
Is McDonald's a franchise?
Over 80% of McDonald's restaurants worldwide are franchised, i.e., they are owned and operated by local businessmen and women. Other pioneers adapted Ray Kroc's franchising business strategy of providing high standards of quality, friendly service, cleanliness and value.
What is franchising?
Franchising is an arrangement in which a proprietor (known as the franchisee) receives the rights to a brand’s (the franchisor’s) trademark and business model in exchange for operating a branch on the company’s behalf.
The main benefits of franchising
The franchise model can benefit both the franchisee and the franchisor in several ways.
How to choose the most profitable franchise to open
What a franchisee considers to be the most profitable, or worth their while, will depend on several factors. Namely, the entrepreneur should consider the initial investment fee and the required annual royalty percentage to the franchisor.
What is franchising in business?
Franchising is an arrangement in which the franchisor gives the franchisee the right to distribute and sell the franchisor’s goods or services and use its business name and business model for a specified period, and possibly covering a geographical area . The franchisor is the owner of the business that provides the product/service, ...
What is business format franchising?
In business format franchising the franchisee has the right to sell the franchisor’s goods or services, but also uses the franchisor’s designs, quality control, training, and also benefits from his/her ...
What are the top ten franchises?
Entrepreneur lists the following as the top ten franchises for 2013 in the United States:
What is wholesaler to retailer?
A wholesaler-to-retailer arrangement – the franchisor (wholesaler) sells products to the franchisee (retailer) who sells them to the general public. This kind of arrangement is common in cooperatives, where the franchisee is, in fact, part of the cooperative (the cooperative is the franchisor). A retailer-to-retailer arrangement – ...
Why is franchising a good idea?
A greater chance of succeeding. Franchising businesses have a much higher success rate than others for people who start in business. However, Entrepreneur disputes this.
What is manufacturer to retailer arrangement?
A manufacturer-to-retailer arrangement – as occurs with car vehicle dealerships. The franchisor supplies the dealership (retailer) with vehicles.
What are the disadvantages of franchising?
Disadvantages for the franchisor: Loss of ownership – the franchisee has put up money and becomes a kind of partner in the business. A business that owns all its branches has not lost ownership. Loss of territory. In most cases the franchisee will be granted an exclusive territory.
A Definition
What is a franchise business definition? A ‘franchise’ is a license granted to an independent entrepreneur, a ‘franchisee’ by an established, successful company – ‘a franchisor’.
The Responsibilities & Obligations of the Two Parties Explained
In exchange for a franchise, a franchisee must pay the franchisor an initial upfront fee, as well as make monthly contributions. These payments usually cover royalties, in addition to marketing and advertising, and operational support.
Advantages Gained by the Franchisor
By franchising their business, a franchisor is able to expand their operation at a far faster pace. This is because their franchisees will establish themselves in new areas and raise the profile of the overall brand. Furthermore, the cost of this expansion won’t solely come out of their own pocket.
Benefits Enjoyed by the Franchisee
Many aspiring entrepreneurs pose the question ‘what is a franchise business and why would it be more beneficial than creating my own independent operation?’ The answer is simple. Starting your own business can be extremely difficult.
Only Certain Businesses Can Be Franchised
You must be aware that not all businesses can be franchised. In order to be successful as a franchisor, a brand must stand out from the crowd, and have proven products and services that are in demand, and will remain in demand for the foreseeable future. Plus, their model should be simple enough that it can be easily taught to new franchisees.
Get Advice
Now the question ‘what is a franchise?’ has been definitively answered, you can decide whether franchising will benefit you. Remember, it doesn’t matter whether you’re an aspiring franchisor or franchisee, Franchise Fame can help you – you’ll receive expert support that’ll enable you to attract new partners, or build your own customer base.
What is Franchising?
Franchising is a form of business by which the owner (franchisor) of a product, service or method obtains distribution through affiliated dealers (franchisees).
What does "franchisee" mean?
A person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor)
Why is my franchise image damaged?
A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs into an unforeseen problem.
What is franchise product?
A franchise provides an established product or service which may already enjoy widespread brand-name recognition. This gives the franchisee the benefits of a pre-sold customer base which would ordinarily take years to establish.
Why is franchise important?
A franchise increases your chances of business success because you are associating with proven products and methods.
Do franchisees pay royalties?
In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees.
What Is A Franchise?
Understanding Franchises
- When a business wants to increase its market share or geographical reach at a low cost, it may franchise its product and brand name. A franchise is a joint venture between a franchisor and a franchisee. The franchisor is the original business. It sells the right to use its name and idea. The franchisee buys this right to sell the franchisor's goods or services under an existing business m…
Franchise Basics and Regulations
- Franchise contracts are complex and vary for each franchisor. Typically, a franchise agreement includes three categories of payment to the franchisor. First, the franchisee must purchase the controlled rights, or trademark, from the franchisor in the form of an upfront fee. Second, the franchisor often receives payment for providing training, equipment, or business advisory servic…
Pros and Cons of Franchises
- There are many advantages to investing in a franchise, and also drawbacks. Widely recognized benefits include a ready-made business formula to follow. A franchise comes with market-tested products and services, and in many cases established brand recognition. If you're a McDonald's franchisee, decisions about what products to sell, how to layout your store, or even how to desig…
Franchise vs. Startup
- If you don't want to run a business based on someone else's idea, you can start your own. But starting your own company is risky, though it offers rewards both monetary and personal. When you start your own business, you're on your own. Much is unknown. "Will my product sell?", "Will customers like what I have to offer?", "Will I make enough money to survive?" The failure rate for …
Franchising Defined
- The word "franchising" is derived from the French verb, franchir, which means to make free or give liberty to, and often referred to freedom from some restriction, servitude or slavery. Franchising can be divided into two major categories: business format franchising and product / trade name format franchising. Business format franchising is define...
History of Franchising
- In the Middle Ages, kings or local sovereigns granted rights to church officials, farmers and tradesmen to collect taxes, brew ale, operate markets or hunt on their land and, in return, obtained a fee for these rights. Probably the earliest example of consumer goods franchising was recorded in 1850 when the Singer Sewing Machine Company granted agents the right to sell and repair it…
The Franchising System
- The franchising system is designed to provide a formula for operating a successful business by providing a uniform product and service concept, thereby offering to the consumer a recognized standard of what to expect and a higher perceived value. A successful franchisor will have tested and specified all product and service delivery systems prior to launching the franchise program. …
Regulations
- Although franchising is now recognized as a global business model, its initial growth began in the United States. The US Federal Trade Commission drafted the first regulations aimed at protecting franchise applicants. Franchisors are required to make an extensive disclosure document available to each potential franchisee before the franchisee signs a franchise agreement. This d…
Advantages and Disadvantages of Franchising
- The primary advantages of franchising from the perspective of the franchisee are the provision of a recognizable consumer brand, tested product and service concepts, technical assistance in the areas of site selection, facility construction and interior design, training, marketing support and financial controls. Franchisors often assist franchisee applicants in obtaining financing and/or le…
Other Franchise Players
- The International Franchise Association (IFA) is the most important membership organization representing franchisors, franchisees and suppliers. The association was founded in 1960 and is the world's oldest, largest and most important franchise organization. It has members from more than 100 countries. Its mission is to protect, enhance and promote all aspects of franchising. Th…
The Economic and Social Impact of Franchising
- According to a recent study on the economic impact of franchising commissioned by the International Franchise Association (IFA), in 2016 the US franchise sector generated, directly or indirectly, over $2.1 trillion of private nonfarm output, and directly or indirectly accounted for 16.1 million private nonfarm jobs (10.1 percent of all US private nonfarm jobs). More than 75 industr…
Bibliography
- International Franchise Association (2016), The Economic Impact of Franchised Businesses: Volume IV, 2016, Washington D.C.
- Aliouche E.H., Schlentrich U. (2013) “Franchising.” In Roy C. Wood, editor, Key Concepts in Hospitality Management, Sage Publications.
- Justis, Robert T. and Richard J. Judd, (2002), Franchising, 2nd Edition, Dame-Thomson Learn…
- International Franchise Association (2016), The Economic Impact of Franchised Businesses: Volume IV, 2016, Washington D.C.
- Aliouche E.H., Schlentrich U. (2013) “Franchising.” In Roy C. Wood, editor, Key Concepts in Hospitality Management, Sage Publications.
- Justis, Robert T. and Richard J. Judd, (2002), Franchising, 2nd Edition, Dame-Thomson Learning, Cincinnati, Ohio.
- Rosenberg, William and Jessica B. Keener, (2001), Time to Make the Donuts, Lebhar-Friedman Books.
