What Is a Franchise?
A franchise is a license to use a business model along with a trade mark. Which is supported with the transfer of know-how for running the business.
When it comes to franchising, two main parties are involved, namely, the franchisor and the franchisee.
The franchisor is the owner of the brand as well as the trademark. He/she also sets the terms in place for authorizing the investor to use the brand’s name and its trademark. On the other hand, a franchisee is an individual or a company who is granted a franchise unit.
What is the purpose behind obtaining Franchise?
A Franchise is acquired in order to gain access to a business’s exclusive knowledge and processes. Mainly for the purpose of selling a product or providing a service under the given brand name, in accordance with certain specifications. Most importantly, franchises are obtained by franchisees/investors in order to represent a successful brand in one’s hometown.
At what cost does such great knowledge transfer come? well, investors, also called ‘franchisees’, are typically required to pay a one-off Franchise Fee for each branch acquired, as well as a consistent percentage of the investor’s gross sales, namely Royalty Fees. Moreover, franchisees are typically required to spend a certain percentage on advertising for the franchise that they purchase. As a franchisor, you may also decide to obtain a corporate marketing fee from your franchisees, in order to advertise for all your global outlets.
Why choose this method?
When you are looking into expanding your business’ horizons, you have multiple options. You may expand through company owned units, franchising, or a partnership. By now you must be wondering, which one is best?
The truth is, there are countless perks related to franchising your business. However, some of the key ones are:
- Instant brand recognition & established reputation
- Expanding globally without managing day to day operations of each outlet
- Financial commitment falls upon the investor
- Quick access to expansion capital
- Buying Power
- Increased Brand Value
Finally, it is important to keep in mind that franchising can be considered one of the fastest, safest and cost-effective method of expansion. The extent to which business can expand in a short period of time is truly remarkable.