Types of franchise. What is a franchise in simple words

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The franchise business emerged as a response to the need to develop the market that arises for 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 by using effective tools to stimulate numerous entrepreneurs who are ready to dive into the world of business, but 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 the modern requirements of market relations and are aimed at mutually beneficial interaction.

Partnership for mutual benefit

As can be seen from the standard franchise agreement, such interaction enables a novice entrepreneur to master the intricacies and wisdom of the chosen business area, as well as a specific product, without investing too much money and effort into it. 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 effectively from the very beginningfunction. Many contracts also stipulate that it is the franchisor who selects the staff for the initial stage of the operation of the new branch.

An enterprise operating on a manufacturing franchise can, with minimal risk, assess how productive, promising and profitable the area of interest is. As a rule, you need to pay an entrance fee and spend some money on the initial equipment of the workspace, but these expenses are much less than in the case of starting a business from scratch. These days, a manufacturing franchise is an easy and efficient way to get into a business.

Commodity Franchise

As can be seen from the reviews of 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 the product.

The terms of the franchise in this case imply the presence of a manufacturer that provides a particular entrepreneur with the opportunity to work with his products. At the same time, the enterprise must use the original brand and comply with the rules of the game established by it. As you can see from the reviews of franchises, this logic is quite simple to work with, which is largely due to the large amount of accumulated information about successful strategies.

Historical Background

Franchise trades have been known since the nineteenth century. The pioneers in this area were American entrepreneurs. At that time, only began to make sewing machinesSinger, and the manufacturer granted several companies the right to sell their goods in a strictly agreed territory. At the same time, the obligatory condition was the preservation of the name of the manufacturer. In addition, this type of franchise involved the service of goods provided by the forces of sellers. For Singer, this approach to business allowed them to expand their sales geography and achieve worldwide fame.

Over time, profitable franchises began to appear on the business market more and more often. For example, the experience of the union of grocers "Despar" is indicative. It united suppliers and sellers of agricultural goods in Germany in the first half of the twentieth century. As practice has shown, profitable franchises require a careful approach to the development of the store concept, access to which can then be sold. Using the concept was beneficial for both parties: both the authors and those who joined the franchise type.

Everything flows, everything changes…

Modern types of franchising 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 manufacturer who owns the rights to the product, and there is an entrepreneur who wants to work with this product. Product franchising involves working under the banner of the manufacturer, using its reputation and starting a business with minimal investment.

What is a franchise in simple terms? This is such a transaction, at the conclusion of which the entrepreneur receives from the supplier an assortment matrix, a store concept, a product,often also staff for the first time work. It is the responsibility of the entrepreneur to operate under the brand name of the franchisee. 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 provide an opportunity to become part of a large holding with minimal investment. At the same time, the manufacturer is increasing its name recognition as well as the volume of transactions, which leads to financial prosperity. Many companies require their partners to keep the volume of transactions at a minimum level, and when this amount is exceeded, they give bonuses and make profitable offers. As a rule, franchises for small, medium-sized businesses assume that the entrepreneur adheres to the standards, service rules, and the level established by the main office. Failure to comply with corporate ethics, with a low service level, you can easily lose the privilege to work under a well-known name.

Thanks to rather tough, but favorable terms of cooperation, franchises for small towns without investments become a way of access to the entrepreneurial sphere 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 buyers, which means that an influx of customers is ensured only through the advertised brand, without any effort on the part of the franchise buyer himself. At the same time, the franchise owner of a pharmacy, clothing,products receives high-quality goods in strictly stipulated terms and at a favorable price. The supplier and the seller are all interested in the profitability of the enterprise, which encourages them to work together, efficiently, and productively.

Alternative

In many cities, bakeries and confectioneries have been springing up like mushrooms lately. Many of them are also franchised. The manufacturer allows the company to work under its recognizable name, provides products for baking, production facilities and a well-established, well-thought-out scheme for implementing, attracting a client. The entrepreneur, paying the amount due under the contract, must simply maintain the outlet in working order.

As can be seen from the described scheme, the company daily sends semi-finished products to the bakery, from which the staff makes buns and cakes so desired by customers. Since the place operates under a well-known name, the potential customer has no doubts about 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, confectionery or even a restaurant. But not everyone wants to work with the goods, so franchising provides the opportunity to provide services in a similar way. A service franchise is also sometimes referred to as a business franchise. Partners conclude a deal regarding the intellectual property of the head office. This assumes that the supplier has some licenses that allow him to work in the selectedcategories, and the right to use these licenses is transferred under a franchise agreement.

Service franchises are abundant on the Internet - a variety of sites. Beauty salons and fitness rooms work according to a similar logic. In some concepts, it is assumed that the franchise buyer is only looking for a client, and the services are provided almost entirely by the head office. 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 is far from always possible to immediately figure out whether a franchise belongs to the category of commodity or service. Much depends on the specifics of a particular zone and on the rules that the head office imposes on cooperation. Many build franchising on a mixed interaction model. A classic example is McDonald's fast food restaurants. By purchasing a franchise, an entrepreneur gets not only access to the brand, but also to the processes taking place within the company. For dishes, semi-finished products are supplied, the head office trains staff, provides unique technologies for the manufacture of the product and offers a number of other specific benefits. 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 both commodity and servicecooperation.

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 used not even in building your own business, but in the insurance field. A certain compensation scheme is supposed to be paid in the event of an insured event. Roy alty is paid under the contract in a fixed amount, and 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 huge number of franchising assumptions on 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 both study the franchise classification system and determine which option is best 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 for everything - there is a certain head office, whose brand should be promoted, and there is a novice entrepreneur who is not ready to create a business from scratch. In exchange for financial gain, he is given all the opportunities to create a business under an already well-known name, that is, one that exactly matches the wishes and requirements of customers. When accessingintellectual property franchise, it is important to assess how valuable the information is, whether it is worth working with it. Franchise offers often look very attractive, but in practice 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

Deciding to enter into such a business, the entrepreneur receives from the franchise seller all the necessary information on the chosen area. Often, this is how real estate agencies are opened, and the head office maintains a common database, one for several regions, and individual offices receive unlimited access to it for a specified amount. The main task is to find a client and keep the information in the database up to date.

Franchising is quite widespread in the field of car rental and the provision of services for cleaning, loading, unloading goods, and moving. The ability to use the client base of the head office is combined with access to a popular brand, which makes getting into business simple and straightforward.

Production & Franchise

For a certain amount specified in the contract, the entrepreneur receives from the head office all the equipment, personnel and opportunities for setting up his own production process. Attached are instructions for using the machines, for training personnel. 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 enterprise is engaged only in providing information, machines, but the direct work falls entirely on the one who acquires the franchise. With minimal costs and investments, there is an opportunity to maximize profits.

Sales & Franchise

In this variant of cooperation, the head office assumes numerous functions - it provides the entrepreneur entering the network with the necessary equipment, often personnel and retail space, and also produces all the necessary goods itself. The task of an entrepreneur who has acquired a franchise is to find a client and sell the product, serving the buyer at the highest level. This option is harder for the franchiser, but easier for someone just starting their first business.

Where to start?

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 ready to invest in a business, and also figure out which work scheme from those described above is most suitable. Currently, on the vastness of the virtual web, there are many directories of enterprises from which you can buy a franchise. Knowing the area in which the potential buyer of franchising is best oriented, as well as imagining under what conditions it will be more convenient to work,you can choose the best option for yourself.

Most often, franchising stores open clothes, shoes, as well as ice cream shops, grocery stores and pastry shops. And yet it’s worth trying yourself in what the soul lies in, even if it is a non-classical area for franchising. It is important to assess the level of competition, as well as the availability of suitable space in your city. If a business is started in a small town where there are already representatives, for example, fast food restaurants, a similar outlet is unlikely to lead to success. Please note: some businesses set limits (for example, no more than one point of sale, store, restaurant per location).