Franchise Article Author: The Franchise Guide
A franchise is an agreement or license between two parties, which gives a person or group of people (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor). The franchisee has the rights to market the product or service using the operating methods of the franchisor. The franchisee has the obligation to pay the franchiser certain fees and royalties in exchange for these rights. The franchiser has the obligation to provide these rights and generally support the franchisee. In this sense, franchising is not a business or an industry, but a method used by businesses for the marketing and distribution of their products or services. Both franchiser and franchisee have a strong vested interest in the success of the brand and keeping their customers happy.
Franchising, the dominant form of small business ownership today, has grown worldwide because its flexibility allows potential franchisees the choice of the type of business they get into, the type of relationship, and the size of their investment. Franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business.
A parent company, or franchiser has authorized each franchise business, to sell their goods and/or services either in a retail space or a designated geographical area. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchiser or that meet the franchiser’s quality standards. There are different types of franchises available:
1.Single unit or direct unit franchises
In a single unit or direct unit franchise a franchisee obtains the rights from a franchise system to operate a single franchise. This is the simplest and most common form of franchise relationship.
2.Multiple single unit operators
As the classic single unit operators prosper, they acquire another franchise from the same franchiser; the franchiser-franchisee relationship is substantially the same, except that the franchisee has multiple single unit agreements. The significant difference is in the leverage that multi unit ownership may have. With more units and more invested, a multi unit franchisee stands out more on the franchiser’s radar than maybe a single-unit operator would.
Further there are two types of franchise methods. There is “business format franchising” and “product and trade name franchising".
Business Format Franchise method: Business format franchise method offers a variety of services to the franchisees. They provide the franchisee use of trademarks and logos, as well as a complete system of doing business. They will assist the franchisee with site selection, interior layout and design, hiring and training, advertising and marketing, product supply and more. The franchisee pays an up front franchise fee and agrees to pay continuing royalties to the franchiser that help the franchiser provide research, development and support for the entire system. There are many examples of business format franchise method, including fast food restaurants, automotive services, estate agents, convenience stores, recruitment agencies, hairdressers etc.
Product & Trade Name Franchising: Product and trade name franchising generally is associated with industries such as automotive, petroleum and soft drink. This type of franchising does not include royalty fees. The franchiser provides trademarks and logos, national advertising campaigns, but most importantly, product.
Franchising may seem like an easy way to start ones own business and many times it is just that. However, investing in a franchise is no guarantee that you will be successful. Your success in franchising will depend on three key factors; your ability to make the investment to secure the franchise and open it for business, the care with which you select the franchise, and most importantly your drive and ambition to make it successful.
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