How Franchising Works

After a business succeeds in one place, it needs to go through the phase of expansion and that’s why the existing business is promoted in a new place. Most of the time, the parent company will look for a partner in the new place to reduce the costs and hassles of opening a new branch. This can be said as the basic premise of franchising. Franchising means that the franchisor will give permission to use its logo, concept or services (its USP) to a franchisee under certain terms and conditions. These terms and conditions are the prime aspects of any franchisee/franchisor relationship. Both should be clear on what is written on the agreement paper!

The franchisor will ask for a franchising fee that can range from several thousand dollars to several hundred thousand dollars from the franchisee. In addition, it may ask for a “grand opening fee” to promote the opening of the outlet. Some will ask for a continuing royalty-fee based on the gross income of the franchisee for a certain period of time. On the other hand, the franchisor will provide the initial training and technical support whenever needed. The company will also help the franchisees to set up their businesses by providing them with initial inventory (for which the franchisee will have to pay). In the long run, the franchisor usually provides additional training, advertisement at the national level (the franchisee is required to pay in the advertisement fund) and on-site assistance, if necessary.

There are some restrictions that a franchisor may impose on the franchisee. It may ask the franchisee to build the outlet in a certain way to maintain the image of the franchise all over the country. It may also dictate on the uniform, opening hours and modes of operation of the franchisees. The franchisee may have to source the raw materials from a particular supplier and the franchisor dictates on what items are to be sold from outlets of the franchisee (it is particularly applicable in case of food chains). The minimum franchising period is set generally for 20 years, but there is no guarantee that it will continue for a second time at the same cost.

Franchising is a complex, yet successful way to launch a new business. brandEXPANSION associates can help potential franchisees determine the right fit. And brandEXPANSION’s franchise development arm can help companies get into franchising or take their franchise to the next level.

To know more about this topic, contact brandEXPANSION.

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