How does a franchise work?

Franchising is a business format that benefits franchisors and franchisees alike. The franchisor can expand the network with other people’s capital by offering them a license to use the branding and know-how associated with the franchise. The franchisee gets the opportunity to be an entrepreneur without some of the risks of a start-up, such as a lack of brand recognition or market knowledge. Here is a short description of how a franchise works.

  • The franchisor develops the business model and tests it

Typically, a franchisor will develop and test a business before franchising it. This includes having at least one company-owned branch operating for more than a year. This branch should indicate the potential profit and return on investment to be had from investing in the franchise

  • The franchisee gets access to branding

One of the main reasons to buy a franchise is to gain access to branding and marketing assets. The franchisee is licensed to use the brand and all marketing assets for the duration of the franchise agreement. The brand remains the property of the franchisor.

  • The franchisee and staff get training on running the business

Another great benefit of franchising is that a franchisee doesn’t need any specific knowledge or skills to run the business, as the franchisor will provide the operational know-how on running the business to the franchisee in the form of training and an operations manual. It is advisable to attend an introductory business skills course if the franchisor does not provide this training. 

  • The franchisor assists with the start-up phase

The franchisor will help the franchisee with the setting up and the launch of the business. This could include project management, assistance with the marketing launch and assistance with the physical store opening. Many franchisors provide franchisees with a “turn-key” store, and this means that they will coordinate all activities required and hand over a store that is ready to trade to the franchisee. 

  • The franchisee continues to run the business according to the formula

Once the store is open, the franchisee must continue to run the business following the operational standards provided by the franchisor. Sticking to the formula is one element of the potential success of the franchised business. The other important aspect is to promote the business in the local market, whether in person or through advertising, to entice new customers to support the franchise. Maintaining quality standards ensures repeat business from existing customers. 

  • The franchisor provides ongoing support and training

The franchisor’s assistance doesn’t conclude with the start-up phase. Being part of a franchise also entails continuing support and training from the franchisor. This could include regular visits from franchisor support staff and ongoing training at the franchisee’s premises, online or at a central location.

Franchising can be a lucrative business model for both franchisors and franchisees. The keys to a successful relationship include mutual respect, ongoing communication, adherence to standards, and brand ambassadorship.

If you would like to learn more about how to run a successful franchise, you should read our previous article explaining each step towards becoming a successful franchisee.

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