Franchising As a Business Model

In a franchise business model, an individual entrepreneur (franchisee) uses the name, trademark, logo, branding, products, and business systems of a larger company (franchisor) to operate the business in exchange for a fee and other payments, such as royalties, licencing fees, and other amounts that depend on the terms of the agreement between the two parties.

Any one or a combination of the many types of franchise ownership choices may be made available to the franchisee by the franchisor.

Franchise Business Ownership Types

Franchise with a single unit: The franchisee buys a single unit from the franchisor.

Franchise with several locations: The franchisee buys several franchises from the same franchisor.

A master franchisee commits to opening a predetermined number of franchises within a given time frame. On behalf of the franchisor, the master franchise can also offer additional franchisees franchises.

Who are franchise owners?

A franchiser is a sizable parent company that grants individual business owners the permission to utilise their brand name, trademark, logo, products, and business knowledge.

The majority of businesses offer franchises to diversify their clientele, generate more money, and boost sales.

Who are franchisees?

A franchisee is a business owner who purchases a franchise from the franchisor. The franchisee gains from the established brand name and business acumen of the main company.

Pros and Cons of Franchise Business Model

Pros

Franchising offers the chance to launch with a well-known brand and devoted customers.

The main company offers corporate intelligence services, including consumer and market research.

You can gain from the franchisor’s tried-and-true business operating procedures and established processes.

Franchisees’ revenues are boosted by the marketing and advertising initiatives of the parent firm.

Since the brand name and products are already well-known, there is little chance of failure.

As the franchisee can sell off the franchise to another party if you choose to retire, you can have a clear exit strategy.

Your business acumen is honed thanks to the parent company’s support and training.

Given that the franchisor’s business model is already well-established, financing is straightforward.

Cons

Buying a franchise entails significant costs for things like licencing fees, royalties, and franchising fees.

Franchisees are required to abide by the franchisor’s rules, which reduce revenues by requiring them to provide discounts and coupons and redesign the location.

Supplies must be obtained from the franchisor’s designated vendors, which could result in higher prices.

Your business may be impacted by any changes to the parent company’s brand image.

The franchisee has little autonomy because the franchisor is in charge.

What Is the Process of the Franchise Business Model?

An agreement between a franchisee and a franchisor is known as a franchise.

It is a short-term agreement that grants the franchisee power over the business in exchange for fees, royalties, or a cut of sales.

Depending on the sector and the franchisor’s business style, the contract conditions change.

The main franchise business models are three.

Franchise for Product Distribution: In this arrangement, the franchisor manufactures the product while the franchisee sells it. To sell the product in a certain area, the franchisor grants the franchisee exclusive or semi-exclusive rights. For instance, franchised auto dealers for well-known manufacturers like Ford, General Motors, Honda, etc.

Franchise: This is the most typical franchise company format. In accordance with this model, the franchisee is granted permission to utilise the franchisor’s trademark and brand name as well as its product distribution strategy. The franchisee not only sells goods or services, but also provides customer service in line with the franchisor’s standards. Due to the similarity in decor, items, services, and experiences between company-owned and franchised stores, customers cannot tell them apart. As an illustration, franchisees of well-known restaurant chains like McDonald’s, Starbucks, and Dunkin’ Donuts.

Franchises for manufacturers – In this model, a manufacturer is granted the sole authority to produce and market the franchisor’s goods. The manufacturer is required to meet the franchisor’s quality requirements and make sure that the goods cannot be distinguished from those made at other factories or by facilities controlled by the franchisor. The clothing, food and beverage, and automotive industries all frequently use this approach. Coca-Cola, for instance, grants manufacturing franchisees to regional producers in several cities.

Gains from Franchising

Both the franchisor and the franchisee can benefit greatly from the franchising business model.

Here are some significant advantages of franchising.

Advantages for the Franchisee

Working with a well-known brand provides a competitive edge and enhances sales potential.

Compared to a startup, the chances of failure in a franchising firm are lower.

makes the purchasing process easier because the franchisee will have access to reliable suppliers and good prices.

Low marketing and advertising expenses since the franchisor handles the advertising efforts.

The franchisee can profit from the franchisor’s expertise and vision.