What is a franchise really in simple terms

Do you really want to know what a franchise really is? I would not advise you to read this article then. Why? Yes, because after you understand what a cool thing is a franchise, you will scold yourself for a long time why you didn’t use it before! And start a franchise business right away. And that's good money. And new worries….. Well, for example, choose a bank where to keep your newly acquired millions… :)

Seriously though, I really don't understand why so many entrepreneurs of all levels don't franchise. I guess they just do not know all the pros and cons of this wonderful business tool. Well .. I'll tell you now about everything that I know myself about the franchise.

Let's figure it out. Franchise, franchisee, lump sum, royalties

Well, we are ready to start studying the question of how. what is a franchise? So. I tell everything in a simple way. Here is your company. Bakes pies. Such a successful one. And even the name of your company is more or less known in your region. Well, your loafers employees even managed to bungle up something like a corporate identity. And they wrote all sorts of rules and instructions for doing business.

And there is a small firm, which, well, very much wants to be like your firm. And then the director of this company comes to you and says: “Listen, friend. Here you are trading in this large city. And I have my business in a shallow hole in a small town. Let me pay you money, and for this I will produce pies like yours. And they will be named the same. I will definitely interfere with it, because you will definitely not open your outlets in my town over the next 100 years.” You agree. And in addition, you give him a package of instructions for business. And help make a sign advertising your pies. And train your employees. But ... he cannot produce any other pies.

In other words, you transfer to this firm the rights to use your brand and technologies, plus help in copying the business. And this firm pays you money. Well, he promises his eternal love only to your company. :) This is the franchise, if simple.

Of course there are other options. Lots of options for this franchise. But you need to understand the essence. By the way, most often not a small company comes to a large one. On the contrary. A large company creates its own franchise network and invites firms there.

The funny thing is that in Russian legislation there is no (at the time of this writing) the concept of a franchise and related terms. There is a commercial concession agreement. Which, with some stretch, can be equated to a franchise agreement.

Well, let's look at some terms. They will meet you in any way in the franchise agreement. So. Literally on top.

  • Franchising- this is actually the name of the process of buying and selling a franchise
  • Franchisor is the company that sells the franchise
  • Franchise- but it is the franchise that is being sold / bought. This is a whole package that includes documents on the rights of use, on the business scheme, on ... in short, on all aspects of the work
  • Brand book- this is a document where all the chips are registered, thanks to which the consumer recognizes the brand of the company. From store design to advertising slogans. In fact, a very necessary thing, although for some reason franchisors do not always have it.
  • Lump sum– one-time down payment for the purchase of a franchise
  • Royalty- and these are regular payments for the franchise

I won't go into detail about it all. If the topic of franchising interests you, then you will need to study all the details and varieties of it all. And there are sooo many options.

What is a franchise for?

OK. With the basic concepts of franchising superficially sorted out. Well, in general, what is all this undertaking with purchases and sales of a franchise actually needed for? What are the benefits for each side?

The one who sells the franchise (franchisor)

  • Tritely quickly attract additional money for your business
  • Sharp expansion of the sales market.
  • “Pumping” your brand awareness

In general, this is an option to expand your business as quickly as possible, let's say “at someone else's expense”.

The one who acquires the franchise (franchisor)

  • Gets advantages over competitors due to a recognizable brand
  • Buys unique (as he thinks :)) business schemes that will get ahead of competitors
  • “Connects” to a preferential channel for the supply of goods with big discounts
  • Gets new clients
  • Or in general - he buys a ready-made, working, profitable (again, as he thinks), business

In general, selling and buying a franchise should be beneficial for both parties. And often it is, except in some cases. Namely, poor development of the franchise and deliberate deception. However, more on that a little further. In the meantime, I will consider two main examples of the “work” of the franchise.

How to increase revenue 100 times in a year with a franchise

In general, in fact, from the real applications of the franchise, there are only two options. The first is the need to quickly expand its influence on any market. Either geographic or product. Now let me explain with an example.

So. You have a transport company. She has a dozen branches in major cities. The company is well known there. She has shown herself positively. I've worked out some tricks on fast shipping. After a while, you come up with a brilliant idea. And what if we open more branches, for example, in 100 additional cities! After all, then the revenue will also grow hoo!!! Inspired, you invite the CFO to a meeting. And this scoundrel pours a tub of cold water on your head. I say it figuratively. More precisely, it shows the costs of opening such a network of branches. You grab your head.. Everything is gone! The client is leaving! You won't find that kind of money in the next 100 years, even with loans! What to do?

Like what? Sell ​​a franchise! It is she who will be a lifesaver in such a situation. Of course, the “franchising” affiliates will take most of the proceeds. But you will still get a good sum from the lump-sum contribution and pianos ... Remember, I spoke about them above ... The main thing is to calculate everything correctly. Thus, by attracting local small transport companies to cooperation under “your own flag”, you can expand your share of influence in one go.

By the way, how good is a franchise in this case? There are such small towns where it is simply unprofitable for you to open your own branch. It still won't pay for itself. Since this is a narrow-profile business unit that is only engaged in the transportation of goods between cities. But a small office, which, in addition to transport services, also provides many others. For example, services for moving or garbage collection will just “pull” an additional “franchising block” in the form of transportation.

Well, the second. If for some reason you do not like the franchise partner, you can always not renew the franchise agreement and open your own branch in a “beefy” place. Not fair? But such is the business selyavi :)

It is clear that similar examples can be given in any other field. Manicure services, fast food, tool rental, …… much more.

Franchising as a business. Is it beneficial?

Here. And the second option for franchise trading is actually trading for the sake of trading. That is, franchising is like a business. How it works?

There is a small business. For example, for the manufacture of personalized cakes. The franchisee is buying out the business. And specially “sharpen” it for franchising. That is, it opens outlets as quickly as possible. Specially “pumps” the brand. Develops and formalizes (that is, writes down on paper) business processes. After the development point is reached, the process of selling the franchise begins.

A package of documents is being prepared, partners are being sought, and there is an active investment in just such a franchise network. The most interesting thing is that often the “parent” company may have, to put it mildly, not very impressive financial performance in the future. And to live and develop mainly due to successful business partners who bought a franchise from her. Don't believe? But for example…. Although okay .. I will not talk about these well-known companies :) Otherwise they will sue.

And he is looking for a new company to promote and sell a new batch of franchises ... and he lives on that. And as for whether the franchise is profitable or not ... Look for the sake of interest, how many franchises are sold ... And you will answer this question for yourself!