Main points
- Types of Franchising .
- Franchising is Based on
- Largest franchised chains
- Advantages of franchising
- Disadvantages of franchising:
Some special terms
Franchising is simply a method for expanding a business and distributing goods and services through a licensing relationship.Franchisors
A person or company that grants the license to a third party for the conducting of a business under their marks.Franchisees
A person or company who is granted the license to do business under the trademark and trade name.Types of franchise
There are two different types of franchising relationships.- Business Format Franchising
- Product and trade name franchising
Business Format Franchising
In a business format franchise relationship the franchisor provides to the franchisee not just its trade name, products and services, but an entire system for operating the business. The franchisee generally receives site selection and development support, operating manuals, training, brand standards, quality control, a marketing strategy and business advisory support from the franchisor.
Product and trade name franchising
In a traditional franchise, the focus is not on the system of doing business, but mainly on the products manufactured or supplied by the franchisor to the franchisee.
Franchising is About Relationships
At its core, franchising is about the franchisor’s brand value, how the franchisor supports its franchisees, how the franchisee meets its obligations to deliver the products and services to the system’s brand standards and most importantly – franchising is about the relationship that the franchisor has with its franchisees. In a 2014 survey by Franchise Business Review on franchisees’ relationship with their franchisors it was determined:
- 90 percent enjoy operating their business,
- 88 percent of franchisees enjoy being part of their organization,
- 85 percent feel positive about their affiliation with their franchisor,
- 83 percent respect their franchisor,
- 80 percent feel their franchisor operates with a high level of honesty,
- 78 percent would recommend their franchise brand to others, and
- 73 percent would “Do it all over again” if they had the option.
Franchise is base on
Franchising is About Systems and Support:
Great franchisors provide systems, tools and support so that their franchisees have the ability to live up to the system’s brand standards and ensure customer satisfaction.
Franchisors and all of the other franchisees expect that you will independently manage the day-to-day operation of your businesses so that you will enhance the reputation of the company in your market area.
Largest franchise chains
- Subway (sandwiches and salads) | startup costs $84,300 – $258,300 (41,916 locations worldwide in 2015).
- 2. McDonald's | startup costs in 2010, $995,900 – $1,842,700 (36,368 Locations in 2015)
- 3. 7-Eleven Inc. (convenience stores) | startup costs in 2010 $40,500- $775,300, (56,439 locations in 2015)
- 4. Hampton Inns & Suites (midprice hotels) | startup costs in 2010 $3,716,000 – $15,148,800
- 5. Great Clips (hair salons) | startup costs in 2010 $109,000 - $203,000 (3,694 locations in 2015)
- 6. H&R Block (tax preparation and now e-filing) | startup costs $26,427 - $84,094 (10,800 locations in 2015)
- 7. Dunkin' Donuts | startup costs in 2010 $537,750 - $1,765,300
- 8. Jani-King (commercial cleaning) | startup costs $11,400 - $35,050, (11,000 partners worldwide in 2004)
- 9. Servpro (insurance and disaster restoration and cleaning) | startup costs in 2010 $102,250 - $161,150
- 10. MiniMarkets (convenience store and gas station) | startup costs in 2010 $1,835,823 - $7,615,065
On the globe
franchisors include Brazil, India, China, and nations in the Middle East and North Africa region.
With their fast-growing populations, rising levels of disposable income, spreading urbanization,
and keen interest in American brands, these nations offer prime growth opportunities for U.S.
franchisors.
In franchising, semi-independent business owners (franchisees) pay fees and royalties to a
parent company (franchisor) in return for the right (license) to become identified with its trademark,
to sell its products or services, and often to use its business format and system. Franchisees
do not establish their own autonomous businesses; instead, they buy a “success package” from
the franchisor, who shows them how to use it. Franchisees, unlike independent business owners,
don’t have the freedom to change the way they run their businesses—for example, shifting advertising
strategies or adjusting product lines—but they do have access to a formula for success that
the franchisor has worked out. “As a franchisee, your role is to operate,” says franchising expert
Mark Spriggs. “You have to be willing to follow the rules.”5 Fundamentally, when franchisees
buy franchises, they are purchasing a successful business model. The franchisor provides the
business model and the expertise to make it work; the franchisee brings the investment, spirit,
and drive necessary to implement the model successfully. Many successful franchisors claim that
neglecting to follow the formula is one of the chief reasons some franchisees fail. “If you are
overly entrepreneurial and you want to invent you own wheel, or if you are not comfortable with
following a system, don’t go down [the franchise] path,” says Don DeBolt, former head of the
International Franchise Association.6
Schlachter’s Maaco Auto Painting and Bodyworks
Anita Schlachter, co-owner of a highly successful Maaco (automotive services) franchise
with her husband and her son, is convinced that the system the franchisor taught them is the
key to their company’s progress and growth to date. The Schlachters follow the franchisor’s
plan, using it as a road map to success. Schlacter says franchisees who listen to their franchisors
and follow their policies and procedures are likely to be successful. Entrepreneurs who believe
they know more about the business than the franchisor should avoid franchising and launch
independent businesses.
Franchising is built on an ongoing relationship between a franchisor and a franchisee. The franchisor provides valuable services, such as a proven business system, training
and support, name recognition, and many other forms of assistance; in return, the franchisee pays
an initial franchise fee as well as an ongoing percentage of his or her outlet’s sales to the franchisor
as a royalty and agrees to operate the outlet according to the franchisor’s terms. Because
franchisors develop the business systems that their franchisees use and direct their distribution
With their fast-growing populations, rising levels of disposable income, spreading urbanization,
and keen interest in American brands, these nations offer prime growth opportunities for U.S.
franchisors.
In franchising, semi-independent business owners (franchisees) pay fees and royalties to a
parent company (franchisor) in return for the right (license) to become identified with its trademark,
to sell its products or services, and often to use its business format and system. Franchisees
do not establish their own autonomous businesses; instead, they buy a “success package” from
the franchisor, who shows them how to use it. Franchisees, unlike independent business owners,
don’t have the freedom to change the way they run their businesses—for example, shifting advertising
strategies or adjusting product lines—but they do have access to a formula for success that
the franchisor has worked out. “As a franchisee, your role is to operate,” says franchising expert
Mark Spriggs. “You have to be willing to follow the rules.”5 Fundamentally, when franchisees
buy franchises, they are purchasing a successful business model. The franchisor provides the
business model and the expertise to make it work; the franchisee brings the investment, spirit,
and drive necessary to implement the model successfully. Many successful franchisors claim that
neglecting to follow the formula is one of the chief reasons some franchisees fail. “If you are
overly entrepreneurial and you want to invent you own wheel, or if you are not comfortable with
following a system, don’t go down [the franchise] path,” says Don DeBolt, former head of the
International Franchise Association.6
ENTREPRENEURIAL PROFILE
Schlachter’s Maaco Auto Painting and Bodyworks
Anita Schlachter, co-owner of a highly successful Maaco (automotive services) franchise
with her husband and her son, is convinced that the system the franchisor taught them is the
key to their company’s progress and growth to date. The Schlachters follow the franchisor’s
plan, using it as a road map to success. Schlacter says franchisees who listen to their franchisors
and follow their policies and procedures are likely to be successful. Entrepreneurs who believe
they know more about the business than the franchisor should avoid franchising and launch
independent businesses.
Franchising is built on an ongoing relationship between a franchisor and a franchisee. The franchisor provides valuable services, such as a proven business system, training
and support, name recognition, and many other forms of assistance; in return, the franchisee pays
an initial franchise fee as well as an ongoing percentage of his or her outlet’s sales to the franchisor
as a royalty and agrees to operate the outlet according to the franchisor’s terms. Because
franchisors develop the business systems that their franchisees use and direct their distribution
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