What is a franchise in business? Franchise agreement. Franchise terms

A growing number of foreign expressions, phrases and words come into our everyday life. This is a natural phenomenon, because even a couple of years ago a term was not known to anyone, and now everyone is hearing it, it turned out to be appropriate in the Russian vocabulary and only occupied a free niche, displacing bulky and complex linguistic constructions. All this fully applies to the term franchise - “privilege”, which we borrowed from the French language not so long ago, and now we are actively applying it in the domestic business. Indeed, a lot of such alien expressions are also found in the sphere of business relations, which respond very quickly to changes in market conditions and are simply obliged by the nature of their activity to promote innovation to the masses.

what is a franchise in business


However, not all companies are guided by their own principles of doing business and building their hierarchy, for some it is much easier to go along the well-trodden path of network leaders, which provide ready-made management solutions. In simple words, only renting a brand and its products is practiced with borrowing all the complexities of the system. As a result, opening a franchise business is sometimes much easier than competing with small players. If earlier only a few resorted to such methods of doing business - advanced nouveau riche or experienced businessmen with experience in organizing international companies, now everything is different, and no one will be surprised by the activities of such a model. As a result, discussions about what a franchise is in business are conducted everywhere. They compare the most famous examples of successful companies that have offered the market a universal or multicultural model of doing business, which turned out to be relevant in all corners of the world.

franchise agreement

First practice

The most striking example, which is rightly called the founder of franchising, is the McDonald's company. In general, many companies can envy its success stories, but there are also instructive moments in it. Indeed, the network owes its popularity not to the MacDonald brothers, who organized the first fast-food establishment, but to Ray Crock, a modest businessman who previously sold equipment for making milkshakes. The significant meeting that turned the life of the whole society did not portend anything special. Ray Krok went to have a bite to eat in a small institution and was very surprised at the popularity of the system presented in it - fast and inexpensive food, delicious hamburgers with soft drinks were just the format that society needed with an eternal lack of time. After talking with the MacDonald brothers, the businessman offered to sell their idea throughout the United States of America and entered into the world's first franchise agreement. Ray Crock's personal funds were not enough to advance the business, and he decided to lay his own house. After this fateful decision, events develop very rapidly: now the McDonalds empire has more than 30,000 restaurants and is still gaining momentum, and the businessman is a billionaire.

Activity Data

A bit of curious statistics about the establishments that are found in all corners of the globe, and the 52-year-old businessman who concluded a franchise agreement with his brothers whose last name is on the signs of these restaurants:

  • In the 70s of the twentieth century in the United States, citizens spent at least $ 6 billion annually on food at McDonald's. At the beginning of the twenty-first century, these values ​​reached truly colossal numbers - more than $ 110,000,000,000. These figures exceed the total costs of books, magazines, newspapers, music, video, education, leisure, computers and software combined.
  • The popularity of the restaurant is explained by the fact that it focuses on family values ​​that are understandable throughout the world and children's parties. Indeed, the image of the clown Ronald MacDonald is so recognizable that only characters known for millennia can compete with him - Santa Claus and Santa Claus.
  • At least 90% of the new vacancies that are freely available in the US market are provided by this well-known network. At McDonald's, one out of every eight people worked.
  • The costs of advertising campaigns in this restaurant chain are in the millions and remain among the highest in the world.
  • Opening a McDonald's franchise business is not as easy as it was before, but with $ 300,000 available for a minimum contribution, this can be done.

What did Ray Crock do?

The businessman did not invent something new or make changes to the existing principle of customer service in fast food establishments. He only took an ideally organized business management system from the MacDonald brothers and rented it to subsequently sell to other interested parties. All restaurant recipes, especially the preparation of dishes, prompt customer service, the principles of staff training and the necessary equipment were carefully studied and applied with the greatest efficiency in megacities, where they were more relevant than ever.

travel agency franchise

Comparison with Subway

To finally understand what a franchise is in business, it is worth considering the principles of its operation using real-life examples. Let's stop on the nearest competitors of the McDonald's company - Subway. They came closest to the power of the founding corporation of fast food chains.


At its core, Subway also focuses on small businesses - the franchise of this restaurant is sold in almost all countries of the world, and currently they have more than 34,000 establishments. While the same "McDonald's" only 33,000 points of sale. It would seem that a broader presence should lead to revenue leadership, but this is not so. McDonald's annual revenue on average exceeds the volume of financial flows of its competitors by almost 2.5 times.

Case studies

Let us put all the points over i, because the question of what a franchise is in business causes a lot of bewilderment, especially when it comes to the principles of its functioning in various fields. Consider its common types in other areas of business.

contingent franchise

Franchise Travel Agency Principles

This organization is responsible for the implementation of leisure activities to the end consumer. After all, the travel agency franchise consists only in the sale and performance of intermediary functions between operators and consumers, for which the company receives its interest. The most obvious advantages of business collaboration between the two sides in the business are that a new company can minimize potential risks. After all, the organization opens under a well-known brand, which speaks for itself and is, as it were, an additional licensing of a travel company and a guarantor of its viability and reliability. However, if there is a choice - which travel agency franchise is better, then you need to pay attention to the following nuances:

  • lump-sum amounts;
  • the presence of a monthly fee (royalties);
  • organization fame;
  • terms of work in business and its success;
  • staff;
  • number of company partners;
  • availability of information about managers in the public domain.

Many companies allow you to find out these questions in the online form of their home page or after filling out the questionnaire on the site. After that, the organization’s representatives contact the interested parties and clarify all the details of the cooperation.

Franchise car business

Vehicles with internal combustion engines or other types of power plants are found on city streets regularly. After all, the times when the car was considered a luxury have long passed - now it is only a means of transportation. It justifies its existence by the convenience of traveling from point A to point B, and many happy owners can no longer imagine their life without an “iron” friend. Therefore, service stations and service centers have become a very profitable business, the liquidity of which is beyond doubt. After all, it provides a stable income, and the profitability and prospects of its development are generally difficult to dispute.

open a franchise business

The specifics of transport services

In a service for a car, a franchise can be a great solution for those who are just planning their own business. However, it should be understood that such investments should also be made wisely. Indeed, franchising in this area offers various packages - multi- or single-brand. The fundamental difference in them is the following: while a contract aimed at one manufacturer allows working only with a specific brand of machines and keeps entrepreneurs within the corporate framework, a business focused on different manufacturers conducts its business differently.

Business Principles

Away from megacities, where people prefer used cars, the same vehicle models are rarely found. Therefore, a monobrand franchise for a small town will often be inappropriate (although there may be exceptions, as in the case of the Far East, where most vehicles are imported from the Land of the Rising Sun), while in megacities it is possible to successfully implement a project, where only cars from one manufacturer will be serviced (for example, Ford, Toyota, Mercedes, and so on). Thus, the services provided will be brought to perfection, and the flow of regular customers will provide the best advertising for the technical or warranty service station.

small business franchise

Risk prevention

If you need to create an insurance company, then there is no need for experts to explain what a franchise is in a business for a particular case and its importance in a service where customer acquisition is built on trust. Indeed, when organizing your own company, which will take on obligations to prevent or compensate risks, it is important to rely on the experience of qualified market players, since it is impossible to build a liquid or properly functioning system from scratch. It is necessary to adopt the skills and principles of the largest companies or networks involved in insurance for both legal entities and individuals. Indeed, compensation for property or other cases upon the occurrence of obligations is reimbursed by the organization to its client to the extent that is provided for by the contract. The size of such compensation is determined by the insurance deductible. In the most common case, payments are made as follows. Compensation is not paid if the loss value does not exceed the amount indicated in the contract. However, a contingent deductible assumes that if the parties exceed the approved financial losses, an insured event occurs and full damage is compensated.

franchise for a small town

Advantages and disadvantages

Although the use of ready-made management technologies is fraught with many positive aspects, it is worth considering the issue comprehensively, since the legal nuances of the contract have a significant impact on the success of the development of the business and may require some amendments. Therefore, before signing the papers, it is important:

  • discuss aspects of future activities with auditors and consultants who, within their competence, can provide the necessary explanations or recommendations;
  • soften the rules of cooperation and the conditions for resolving disputes;
  • to display in the contract the terms for making corrections by the parties, which will allow to fully adjust the franchise conditions;
  • provide for provisions on the mutual payment of legal costs;
  • to exclude positions that recommend holding a debate in arbitration, which is a private matter and does not create precedents;
  • to stipulate the principles of extension of the contract;
  • to prescribe the procedure in case of force majeure situations and preferential conditions for the period of restoration work.

Subject to these important conventions, the positive results of the business will not take long and will delight both customers and owners that they have assumed responsibility for the development of the business.

Source: https://habr.com/ru/post/A10002/

All Articles