The franchise business appeared as a response to the need for market development arising from any successful company. To achieve maximum profit, you need to be able to promote the product and make the brand popular. This can be achieved using effective tools to stimulate numerous entrepreneurs who are ready to immerse themselves in the business world, but who do not know where to start. A franchise business involves partnerships for which the head office initially sets the conditions, while others are forced to obey them. Franchising is currently a fairly broad concept, involving several varieties of cooperation mechanisms. They are united by the fact that they meet modern requirements of market relations and are aimed at mutually beneficial interaction.
Mutual Benefit Partnership
As can be seen from the model franchise agreement, such an interaction allows an aspiring entrepreneur to master the intricacies, wisdom of the chosen business sector, as well as a specific product, without investing too much money and effort. The head office, providing a franchise, at the same time gives all the tools, access to extensive information, on the basis of which the company can function efficiently from the very beginning. Many contracts also stipulate that it is the franchisor who selects personnel for the initial stage of the functioning of the new branch.
An enterprise operating on a production franchise can, with minimal risk, evaluate how productive the area in question is, prospective and profitable. As a rule, you need to pay an entry fee and spend a certain amount on the primary equipment of the workspace, but these expenses are much less than in the case of starting a business from scratch. Today, a production franchise is a simple and effective way to enter a business.
Commodity Franchise
As can be seen from the reviews about the franchise, this option (according to many entrepreneurs) is one of the most profitable. An alternative name is distribution franchising. The workflow involves relationships through goods.
The franchise working conditions in this case presuppose the existence of a manufacturer that provides a particular entrepreneur with the opportunity to work with his products. At the same time, the company must use the original brand and comply with the rules of the game established by it. As you can see from the reviews about franchises, working with this logic is quite simple, which is largely due to the large amount of accumulated information about successful strategies.
Historical background
Commercial types of franchises have been known since the nineteenth century. The pioneer in this area were American entrepreneurs. At that time, Singer sewing machines were just beginning to be manufactured, and the manufacturer presented several companies the right to sell their goods in the territory strictly agreed upon by agreement. At the same time, the preservation of the name of the manufacturer was mandatory. In addition, this type of franchise involved the service of goods provided by sellers. For Singer, this approach to business allowed expanding the geography of sales and achieving worldwide fame.
Over time, profitable franchises began to appear on the business market more and more often. For example, the experience of the Despar Grocers Union is indicative. It brought together suppliers and sellers of agricultural products in Germany in the first half of the twentieth century. As practice has shown, profitable franchises require a thorough approach to developing a store concept, access to which can then be sold. Using the concept was beneficial for both parties: both authors and those who joined the franchise.
Everything flows, everything changes ...
Modern types of franchises are quite different from those transactions that were concluded two centuries ago, at the same time, the essence of cooperation remains the same. There is a certain manufacturer with the rights to the product, and there is an entrepreneur who wants to work with this product. Commodity franchising involves working under the guise of a manufacturer, using its reputation and starting a business with minimal investment.
What is a franchise in simple words? This is such a deal, at the conclusion of which the entrepreneur receives from the supplier an assortment matrix, a store concept, goods, often also staff for the first time. The entrepreneur has the obligation to work under the trademark that has provided the franchise. What is (in simple words) doing business according to this scheme? Most often - the sale of clothing, food, shoes.
Terms & Conditions
Franchises for small businesses make it possible to become part of a large holding with minimal investment. At the same time, the manufacturer is increasing the recognition of its name, as well as the volume of transactions, which leads to financial prosperity. Many companies require their partners to maintain transaction volumes at a minimum level, and when this amount is exceeded, they give bonuses and make advantageous offers. As a rule, franchises for small and medium-sized businesses assume that the entrepreneur adheres to standards, service rules, and the level set by the head office. If corporate ethics is not followed, at a low service level, you can easily lose the privilege of working under a known name.
Owing to rather strict but favorable conditions for cooperation, franchises for small cities without investments become an access to the business sector for those who have a desire, but do not have large cash reserves and special education. The product offered by franchising is well recognized by customers, which means that an influx of customers is ensured only through an advertised brand, without the efforts of the franchise buyer himself. At the same time, the franchise owner of a pharmacy, clothing, products receives high-quality goods in strictly agreed terms and at a bargain price. The supplier and seller are all interested in the profitability of the enterprise, which stimulates working together, efficiently, productively.
Alternative option
In many cities, bakery and pastry shops have literally grown like mushrooms after the rain. Many of them are also franchised. The manufacturer allows the company to work under its recognizable name, it provides products for baking, production facilities and a streamlined, well-thought-out scheme of sales and customer acquisition. The entrepreneur, paying the amount due under the contract, should simply maintain the point in working condition.
As can be seen from the described scheme, the company daily sends semi-finished products to the bakery, from which the staff makes rolls and cakes so desired by customers. Since the place works under a well-known name, the potential client does not doubt the quality of the product and boldly goes to spend money, even if the price of (for example) bread is higher than in the supermarket.
Goods and services
According to the scheme described above, you can buy a franchise of a pharmacy, clothing store, pastry shop or even a restaurant. But not everyone wants to work with the product, so franchising provides the opportunity to provide services according to a similar scheme. A service franchise is also sometimes called business franchising. Partners conclude a deal regarding the intellectual property of the head office. It is assumed that the supplier has some licenses that allow him to work in the selected category, and the right to use these licenses is transferred under a franchise agreement.
Service franchises in abundance are presented on the Internet - these are a variety of sites. By the same logic, beauty salons and fitness rooms work. In some concepts, it is assumed that the franchise buyer is only looking for a client, and the head office provides almost completely the services. This scheme is common among medical enterprises, especially laboratories. The entrepreneur opens a service point where he receives biological material from the client, sends it to the research area of the head office, and then transfers the received data to the client.
Terminology and differences
It’s far from always possible to immediately understand, the franchise belongs to the category of product or service. Much depends on the specifics of a particular zone and on the rules that the head office introduces for cooperation. Many people build franchises using a mixed interaction model. A classic example is McDonald's fast food restaurants. By acquiring a franchise, an entrepreneur gets not only access to the brand, but also to the processes within the company. Semi-finished products are delivered for dishes, the head office trains staff, provides unique technologies for manufacturing the product and offers a number of other specific advantages. A partner who has acquired a franchise must be engaged in maintaining the image, attracting a buyer, selling goods, servicing the client directly sitting at the table. In fact, we are talking about commodity and service cooperation.
However, the concept under consideration is much broader than it seems at first glance. There is also a conditional and unconditional franchise. This terminology is not even used in building your business, but in the insurance field. It is assumed a certain scheme for the payment of compensation in the event of an insured event. Gratuitous is paid under the contract in the prescribed amount, while the conditional depends on the specifics of the situation.
Classification: why is it needed?
The described division of the franchise system into several groups makes it easier for a potential businessman to master this area of mutually beneficial relations between companies. There are a lot of assumptions of franchising in the modern market, and pitfalls, features of a particular transaction are not always visible at first glance. On the other hand, only the right choice can be the key to successful business. This means that you need to carefully study both the franchise classification system and determine which option is optimal in a particular case.
It is important to remember that business concepts for different franchise classes are quite different in nature. At the same time, the idea is the same - there is a certain head office, whose brand should be promoted, and there is a novice entrepreneur who is not ready to start a business from scratch. In exchange for financial gain, he is given all the opportunities to create a business under an already known name, that is, one that exactly matches the wishes and requirements of customers. When accessing intellectual property under a franchise, it is important to evaluate how valuable the information is, whether it is worth working with it. Franchising offers often look very attractive, but in practice they are much less profitable than advertised. The quality of the initial concept determines the success of a businessman.
In the Russian market, there is also the following division of relations in the field of franchising:
- sales;
- service;
- production.
Service and franchise
Having decided to enter into such a business, the entrepreneur receives from the franchise seller all the necessary information in the selected area. Often this is how real estate agencies are opened, with the head office maintaining a common base, one for several regions, and individual offices for an agreed amount get unlimited access to it. The main task is to find a client and keep the information in the database up to date.
Quite widespread franchising in the field of car rental and the provision of services for cleaning, loading, unloading goods, moving. The ability to use the client base of the head office is combined with access to a well-known brand, which makes entry into the business simple and straightforward.
Production and Franchise
For a certain amount stipulated in the contract, the entrepreneur receives from the head office all the equipment, personnel and opportunities for setting up his own production process. Instructions for using the machines, for training personnel are attached. The head office conducts trainings, thanks to which a novice entrepreneur can immediately create high-quality products that meet current standards and customer expectations.
For the head office, this type of franchise is one of the most convenient. The company is engaged only in the provision of information, machines, but the work itself falls entirely on the one who acquires the franchise. With minimal costs and investments, it is possible to maximize profits.
Sales and Franchise
In this variant of cooperation, the head office assumes numerous functions - it provides the entrepreneur who enters the network with the necessary equipment, often staff and retail space, and also produces all the necessary goods. The task of an entrepreneur who has acquired a franchise is to find a client and sell the goods, serving the buyer at the highest level. This option is more difficult for the franchise provider, but easier for someone who is just starting their first business.
Where to start work?
When choosing the best franchise for yourself, it is important to analyze several factors. First of all, you need to understand how much money a novice entrepreneur is willing to invest in a business, and also to figure out which work scheme from the above is most suitable. Currently, in the vastness of the virtual web, there are many catalogs of enterprises from which you can buy a franchise. Knowing the area in which a potential franchising buyer is guided best, and also imagining on what conditions it will be more convenient to work, you can choose the best option for yourself.
Most often, franchising opens stores selling clothes, shoes, as well as ice cream shops, grocery stores and pastry shops. Nevertheless, it is worth trying yourself in what the soul lies to, even if it is a non-classical sphere for franchising. It is important to assess the level of competition, as well as the availability of suitable space in your city. If you start a business in a small town where there are already representatives, for example, fast food restaurants, a similar outlet is unlikely to succeed. Please note: some enterprises set restrictions (for example, no more than one point of sale, store, restaurant per settlement).