Franchising 101 - Franchising Business Model Overview

A franchise business model is based on leveraging another company?s proven processes, systems, technology, in operating the business ? essentially becoming the franchisor?s strategic partner by following their model and duplicating their success in your region.

Franchising is often referred to as an industry, but it is more a business model applied to different industries. Franchising provides a plan for creating business success with the highest potential for profitability with the least amount of risk. Boiled down to its absolute most essential elements, a franchisee can be consider the strategic partner and the franchisor is the founder.

Franchising Simply Stated

A franchise is an opportunity for those wanting a business to step in to a proven business, usually in a protected territory. The risks are much smaller for an entrepreneur if the track record of the business is proven. The expense of start up is generally smaller and the training for running and operating the franchise is usually provided. A quicker start, proven products or services and a traceable record of success can be a lure for any who wants the opportunity to operate their own business.

The franchisor wants their franchisees (strategic partners) to succeed. With their success, the franchisor becomes more successful. In order for this to happen, the franchising business model usually follows a plan that conforms to certain aspects:

• Royalties ? The use of a name, proprietary stock or equipment entails paying the franchisor a royalty or commission for the duration of the contract period. There are usually two forms, a flat fee or a percentage of sales. Either has benefits and drawbacks. A flat fee may initially cause the franchise owner problems while the business is becoming established but enables a greater reward once the business is more successful. A percentage can be an easier way to pay initially but as business grows, more of the profits go back to the franchisor.
• Consistency ? Every location of the franchise is designed to function precisely as the others. The franchising business model depends on the customer being able to expect the same service, quality or product in every location. The franchise owner is bound by contract to follow the proven model of success.
• Marketing ? The brand is established. It may be regional, national or international. Generally the company handles most of the marketing and advertising. The franchise owner may or may not be required to contribute to an advertising pool. Either way, others determine the best methods of marketing and advertising the brand and the franchise owner receives the benefits without the headaches of trying various media options.
• Purchasing Power ? An independent business owner is at the mercy of buying supplies at the same price as other independent competitors. The franchising business model, because of the larger numbers, often wields better buying power. Franchise owners enjoy this aspect of the franchise business, which keeps them far more competitive and more profitable in the marketplace.

Although the restrictions and agreements with the franchisor may seem constricting, the rewards can be impressive. Those who can adapt easily to a franchise business model often find themselves investing in other franchises, increasing their territory, market share and wealth.

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