Some key considerations
Franchising is a very good method of growth for some businesses. Some of the key benefits for the franchisorÂs include:
- increased service channels for the franchisor providing quick market penetration
- chance to maximise existing networks
- a reduction in the risk of failure
- control of all businesses through a franchise agreement
- the granting of a licence to a given franchisee for a fee over a fixed term
- an identical business format following your perfected practices/procedures and
- the opportunity to make money from providing support and marketing services to franchisees.
To set up a franchise, the franchisor has to put in some hard work in documenting his practices/procedures.
First and foremost the franchisor must have a pilot operation up and running. He must have manuals, programs for marketing, training, monitoring and control procedures and dealing with the finances of the business. Above all the business model produced must be attractive to others in order for it to be successful.
In return for offering a franchise the franchisor will usually seek a royalty payment, i.e. a fee based as a percentage of the franchiseeÂs turnover or margin on product/ service in addition to an initial franchisee fee (outlay fee) for the costs incurred in setting up the franchisee in business.
The franchisee will benefit from the power of the brand of the franchisor, the wealth of experience that the franchisor has in the product/service and the support that the franchisor can provide in what one would assume is a proven product/service, the marketing of the product/service on a wider scale, product/ service development etc.