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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 franchisor certain fees and royalties in exchange for these rights. The
franchisor 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 franchisor and franchisee have a strong vested interest in the
success of the brand and keeping their customers happy.
Typically there are two types of franchise methods. There is “business format
franchising” and “product and trade name franchising".
Business Format Franchising
Business format franchising 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 franchising, including – fast food
restaurants, automotive services, estate agents, convenience stores, recruitment
agencies, hairdressers etc.
The type involves three characteristics:
- The franchisee sells goods or services which meet the franchisor's
quality standards (in cases where the franchisee operates under the franchisor's
trade mark, service mark, trade name, advertising or other commercial symbol
designating the franchisor ("mark") or which are identified by the franchisor's
mark;
- The franchisor exercises significant assistance in, the franchisee's method
of operation;
- The franchisee is required to make a payment to the franchisor or a person
affiliated with the franchisor at any time before to within six months after the
business opens.
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.
This type, also offers three characteristics:
- The franchisee sells goods or services which are supplied by the franchisor
or a person affiliated with the franchisor;
- The franchisor assists the franchisee in any way with respect to
securing accounts for the franchisee, or securing locations or sites for
vending machines or rack displays, or providing the services of a person
able to do either;
- The franchisee is required to make a payment to the franchisor or a person
affiliated with the franchisor at any time before or within six months after the
business opens.
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.
For more details on why you should chose a franchise is please visit our
Why a franchise? page.
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