What is a Manufacturing Franchise
Wholesale franchise. How the franchise works in examples
A franchise is a set of benefits required to run a business, including the business model, brand, and other components of the franchisor's entrepreneurship. A trade franchise can include original technology, business method, and use of brands and equipment. All of this is transferred from the owner to the recipient for a certain fee, along with obligations and benefits.
Commercial franchising is the easiest and fastest way to promote your business in the market because the franchisee has a consciously profitable profitable business at his disposal. Additionally, the franchisee is usually willing to provide full support and assistance to their franchisee (the buyer) as the success of their business is in the best interests of the franchisor (the seller).
Franchise costs: components
To buy a franchise in stores, you must pay a mandatory flat fee (total fee) that confirms the buyer's right to use a number of conditions. In addition, the franchisee pays a certain percentage of the turnover (license fees) to the brand owner every month. In addition, the cost of the franchise includes capital that covers the cost of starting a business (the price of renting / buying premises, equipment, paying for employees, etc.). These funds are transferred to the franchisor when they transfer the "finished" point of sale to the buyer. Use the franchise catalog on our portal to select the most profitable franchise.
Franchise advantages in retail
A franchise offers tremendous benefits to a company or entrepreneur who decides to start a business, such as:
- No need to promote a brand. As a rule, brands that have been transferred under a franchise agreement are recognizable and therefore do not require active advertising.
- Fast business development. When purchasing a finished business, an entrepreneur immediately moves to normal trading volume. It doesn't have to win the trust of potential buyers.
- Advice, training and comprehensive support. Thanks to the active support of the franchisor, the franchise user avoids typical mistakes made by almost all entrepreneurs who start their business from scratch.
- Stable market position. A franchise company requires clear territorial boundaries for business activity, which automatically excludes the appearance of competitors.
So, becoming a franchisee is a profitable way to start a business and generate income.
This is an opportunity to run your own business under the brand and with the support of a well-known company. In short, it is the right to use the brand, current business model and control by the brand owner (franchisor).
From 10 thousand to 100 million rubles. Of course there are franchises that push these limits, but 99% fit into them. The franchise price depends on investments in equipment, premises, purchase of goods, personnel, marketing, as well as the amount of the lump sum payment.
At the time of signing the contract, the buyer of the franchise (franchisee) receives from the owner of the brand (franchisor) the right to work under the brand, as well as a knowledge base and standards. The franchisee pays a flat fee (entry fee). Then he does an apprenticeship and starts his company. The support that is received while working is paid for through license fees - ongoing payments (usually monthly). If the franchisee wants to open another branch, he usually signs the contract again. The same applies if the contract period has expired.
Trading franchises (they are the same) is a method of business that not only involves buying goods from a well-known company, but also opening a store under its brand. The peculiarity of such franchises is the lack of a flat fee and license fees: they are usually included in the cost of the goods purchased.
A franchise gives you the opportunity to minimize risks when starting a business. You already have a well-known brand and experience of the management company and other partners. But don't think that by purchasing a franchise you have already secured your success. This is only achieved by the franchisees who are actively involved in the work of their business.
Franchising is a form of relationship between two companies (mostly legal entities) in which the transfer of goods takes place (rights to a brand, as well as a knowledge base and labor standards). Usually this concept is equated with a franchise, but there is one small difference: if a franchise is WHAT, then franchising is HOW the benefits are transferred.
If you want your business to run with minimal risk and are willing to limit your freedom for profit reasons, franchising is your choice. When you have a whole new idea or understand that you are not ready to work under someone else's control, it is better to start your own business.
Only buy a ready made business if you know exactly what you need, know how to run that business, and you are sure that you will find such a business. If you only have a rough idea of what you want to do, or if you have no experience in the field, choose a franchise.
When a person starts his own business, he has to face many problems - promoting a brand from scratch, developing technology. In such conditions, it takes years to get a decent result. But at this point the competitors do not stand still, as the heroine said. Carroll, « you have to run to stay in placeTherefore, anyone who knows what a franchise is and how it works tries to compare the possibilities of a franchise before investing a lot of money in their business.
- What is a franchise and how does it work? How do I buy a franchise and what are the typical mistakes an entrepreneur makes? We will try to provide the most complete information possible.
What is a franchise in simple terms
franchise This is the case when companies with proven technology and a well-known brand allow other companies to use their name. In addition to the name, they also convey other knowledge such as production technologies, company standards, rights to patents and inventions. This is the definition of a franchise in simple terms.
The first company that comes to mind when we hear the word "franchise" is MC DonaldsBut franchising has much older roots. Isaac Singer, Inventor of the famous sewing machine ZingerIn 1858 he was the first to lay the foundation for the concept of franchising. He began selling licenses to dealers in different parts of the country and provided them with his own products and training staff.
According to the formal definition, a franchise is a permit for a legal or natural person to take advantage of the benefits franchisor... In addition, the person who acquires this right is named franchiseeand the entire business model is called cheeky.
Sometimes this right is transferred for free, but more often franchiseeis obliged to pay for the service received. The board is divided into two parts:
- Lump sum payment... a one-off amount that is transferred when a franchise agreement is concluded.
- ... monthly or yearly payment.
Each franchisor company develops its own terms and conditions, which can vary significantly.
- There is no concept of a franchise in Russian legislation. Chapter 54 of the Civil Code of the Russian Federation introduces the definition of a trade concession, according to which the transfer of a number of goods is carried out by the owner of the copyright.
The aforementioned fast food restaurant chain owns less than half of 36,000 restaurants;; Most are open to franchise businesses. grants the right to use your famous brand, logo, menu, etc. Business people who own restaurants, in turn, pay royalties, which are calculated as a percentage of sales.
This is the main tradeoff in franchise relationships. Franchisor ( in this example McDonald's) enables other people (franchisees) to use the business model and brand awareness and in return receives a percentage of sales.
What are license fees and franchise lump sums?
One of the most common questions asked is how much does it cost to start a franchise business? You can estimate the cost of choosing a franchise business.
The down payment in the form of a fixed amount is called lump sum payment, regular payments for the continuation of the cooperation - royalties.
In exchange for the right to use the franchisor's name, product, or technology, some or all of the following fees are usually required:
- Lump sum payment - The initial deductible fee is non-refundable. The size of the amount varies widely, but the tendency is as follows: the higher the level of brand awareness, the more expensive it is to "step under the wing" of a strong company.
- paid regularly ( monthly or quarterly) during the contract period. A kind of membership fee. Fixed amounts or percentages of gross sales - the options vary.
- Training costs - Some franchisors offer training for the price of a flat fee, others take it on on a separate line.
- Advertising fees are entered in the advertising or marketing fund of the parent company. This money is spent on television and radio advertising, developing and printing POS materials (brochures, posters, leaflets).
- Renewal of the franchise (renovation) - Fee for the renewal of the franchise agreement.
Large franchisors often develop multiple market entry programs. Preliminary calculations of the payback and profitability for a given region are taken into account.
For example the franchise " 220 volts»Will be transferred free of charge, but the partner undertakes to only buy the goods from the franchisor.
Types of Franchises
The word franchise translated from French means " privilegeAs you know, the benefits are different. Depending on how different franchisors allow their name to be used and what they offer in return, there are three main types:
- business franchise;
What is a business franchise? This is the most common type of relationship in which a franchisor offers independent business owners an established business including a name and brand. Fast food restaurants are a good example of this. The franchise catalog shows how long-established brands - Papa Johns, Coffeeshop Companyand new - " Food from the champion", Bar" Honey i'll call you back».
The franchisee receives support from the parent company in the selection, planning and design of premises, in hiring and training staff and in developing the marketing component. Flat-rate fees and royalties vary so widely that it is necessary to carefully examine the terms of each individual company. This type of franchise is often referred to as a "turnkey business" as the franchisee gets almost everything he needs to start his own business.
The franchisee has the right to distribute the product manufactured by the franchisor. Well-known product franchises include all other automakers, some brands of clothing and shoes: Incanto, BAON, ALBA.
This type of franchise often does not include license fees. The franchisee is obliged to purchase a certain amount of a product or a range of products from the franchisor. And it offers national advertising campaigns, a logo and a brand.
The manufacturer grants the right to manufacture and sell goods using his brand and his trademark. This type is widely used, for example, in the food and beverage industry.
Another technical point that is important to look for a suitable investment idea. The rights that a franchise agreement offers are very different in one case or another.
What are the franchises
- Direct franchise - The franchisor grants the right to open a company at the agreed location. The oldest and simplest form of relationship. The disadvantage is this: if the franchisee has the desire and ability to open additional points, a new contract and new monetary contributions are required every time. That is, using the example of a clothing store: it is impossible to open another store without coordinating the problem with the parent company and paying a flat fee.
- Multi-franchise - The buyer has the right and the obligation to open a certain number of production / trading places in a certain area for a specified period of time.
- Master Franchise Similar to the previous paragraph, but with one major difference: the franchisee receives the right and obligation to sell the franchise in the territory approved by the contract. The master franchisee becomes a franchisor in his region.
Let us reiterate that the last two versions of the franchise agreement provide for a right and an obligation.
If the franchisee does not keep up with the contractual pace of development and expansion, this is punishable: termination of the contract, contractual penalty, transfer of exclusive rights to another businessman, etc.
In addition, there are the following types of franchise companies:
- Free... The franchisee receives the right to use the trademark, but his actions are not controlled by the owner of the rights.
- silver... In this case, the company opens a branch, organizes its activities and only then sells the right to temporary use.
- gold... Transfer of monopoly rights to conduct business under the trademark of the copyright holder in a specific region. The buyer of the gold franchise decides for himself how to use the name and develop the business.
- Import substitution... This scheme is similar to plagiarism. A businessman works in the country under the name of a well-known company, but does not deduct royalties. It's like " Adidas"And" Abibas"The names are similar and there is nothing to complain about. However, such a deal has nothing to do with the original brand.
The Civil Code requires that any commercial concession agreement be registered with Rospatent. In this case, the franchisor must first register its brand and technology there. In theory, it is possible for McDonald's to miss the re-registration period and any business owner can register.
Almost every industry has successful and well-established business practices. Franchises of retail stores, beauty salons, fast food restaurants, factories, and many others are being sold. For the sake of simplicity, we've put some popular brands together in one table - a mini catalog of franchises.
|Lump sum payment||Total investment||Payback period|
|Dodo pizza||350 000||3-5%||3 000 000||1 year|
|Pizza Celentano||400 000 – 800 000||2%||2 000 000||1 year|
|Papa Johns||1 000 000||6%||10 000 000||2 years|
|Domino`s pizza||2 000 000||7%||15 000 000||2 years|
In order to make a profit, it is important not to seek just a temporary profit. Ray KrocThe founder of the McDonald's chain said more than once:
"If I had a brick every time I said 'quality, service, cleanliness' I would probably be crossing the Atlantic."
What should be in the contract
A typical franchise agreement consists of several hundred pages. From that, what is a franchise in simple termsit's hard to explain, and it's even harder to do on paper. A businessman cannot understand the intricacies without legal support.For example, the Civil Code contains the following norms:
- The duration of the contract does not have to be specified. However, if there is one, the terms of the renewal must be agreed upon.
- Only legal persons and sole proprietorships have the right to be contracting parties. This is not available to individuals.
- You can only conclude an agreement in writing.
- The franchisor is obliged to train not only the franchisee but also his employees in their own technologies.
- The buyer of the franchise must meet all of the seller's requirements for product or service quality.
The contract also mandates control technologies, whether they are secret buyers, passing exams or visiting inspectors.
How not to fall for the bait
After entering the franchisor's website, the visitor is in bloom with joy. And the investment is minimal and the support is comprehensive, promises bonuses and entices gifts. All of this is hosted on a one-way website.
When signing a contract, a businessman finds a document in front of him on a hundred pages... this is not an exaggeration, this is the size of a standard contract. In addition, it was created taking into account the interests of the franchisor. How the franchise works and how it protects the franchisee, he has to take care of himself. Even if the offer seems tempting at first glance, you should only believe the contract written on paper.
When concluding a contract, it is worth calling in a lawyer, whose payment will be repaid many times over in subsequent savings. If it becomes difficult to add to the standard McDonald's agreement yourself, you can easily insist that several points of the agreement with a lesser known company be terminated or changed.
What questions should you ask the franchisor?:
- When did the franchisor start selling the franchise? If the franchise is young and the results of the franchisee's activities are still not clear, this is another reason to think about it.
- Is the business financially successful? After seeing the results of the activities of the past three years, you can roughly orientate yourself on the prospects for your own company.
- How many franchisees have closed? The percentage of success and failure is not a theory of probability, but rather certain numbers that give an idea of the odds.
- What kind of support is offered? Assessment of premises, employee training, amortization calculation, advertising and sales promotion in a new region? What does the franchisee get besides the brand?
The short list of questions can and should be supplemented by questions that arise during the examination of the proposal. And above all: the business is not a statue carved in stone, everything flows and changes.
Advantages and disadvantages of the franchise
Having a proven business system that has been tested more than once in different regions is an indisputable and main benefit when buying a franchise. To make the recordings yourself or to copy the experience of a successfully developing and competing company?
Arthur Bartlett, Founder Century 21 real estate: "The franchise became the savior of free enterprise, it gave small businesses a chance to survive ..."
Yes, the franchise business reduces the risk of failure. Not as important as the advertising brochures of interested companies promise, but still. US statistics confirm that 90% of do-it-yourself business projects fail in the first three years.
It is a difficult task for a single entrepreneur to compete with big business. As a recognizable brand, special collaboration terms are an obvious plus that a franchise offers.
“The world does not stand still. We don't deserve to be where we are if we're not ahead of the curve and taking the steps necessary to stay competitive. " Fred DeLuca, Founder Subway.
The franchisor offers proven business technologies that are constantly being improved: advertising, marketing, administrative support. Lack of knowledge and experience is not a problem - the franchisor offers training for the franchisee.
In many cases, the franchisee receives exclusive territorial rights, a monopoly on the assigned territory. Of course, under the brand name of the franchisor. If a brand is successful and recognizable, it will "crush" competitors in the niche.
- The sad fact is that some franchises get an 80% bounce rate while others have fewer outages.
Before signing an agreement, you need to carefully read the statistics: how many projects are successful, how many have been completed? Talking to the owners of the franchise isn't the last, you don't need to save money or time on this item. Opening up a franchise seems like an easy way to start your own business. However, some factors are not noticeable, and the idea is so tempting that a potential franchisee will step on the ranks of unfortunate predecessors.
Franchising is not a flexible business method. The specifics of a particular area, which the franchisee sees and understands well, are often not obvious to the franchisor. Make changes to the store format, offer customers additional discounts, and choose a product that suits the tastes of the buyers ( in a retail store like) Is not always possible.
When an agreement is signed obliging the franchisee to expand the network, the business must work well and generate a profit for the franchisor. Failure to comply with agreements is a reason for the franchisor to refuse to work without compensating the franchisee.
Instead of output
You can already understand in simple terms what a franchise is - an agreement that allows one of the parties (franchisee) to sell a product or service using the brand, marketing strategies and technologies of the second party - the franchisor .
- Franchising is an advanced business method that benefits both parties.
For now " catch the stream"And" collect the cream"A new trend is every entrepreneur's dream. Here, however, it is better to do the opposite. You have to look for a franchise that is already established. Sustainable growth and a low percentage of" burned-out "franchisees are the only indicators that can be used as a guide.
Marriott, Founder of the hotel chain: “My life experience shows that success is never final. We make decisions on the way to the bottom line. "
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Franchising is a common form of business partnership. This direction has gained popularity in many segments, but is mostly found in retail. Each of us probably bought a product or used the services of a franchise without realizing it.
Franchise - what is it in retail?
A franchise is a type of market relationship for commercial concessions. It means long-term business cooperation and partnerships between several companies.
The essence of franchising is reselling the right to use the brand along with the established business technology. As a rule, a large, well-known company with an advertised name sells the right of use together with the technique of selling goods to other market participants - companies that are independent of it.
The following participants are distinguished in the franchise agreement:
- A franchisor is a company that transfers its brand, expertise, business scheme, or operating system for use for a set fee.
- A franchisee is a company that is given the opportunity to be trained and assisted in starting a new business project, to work under a well-known brand, and to pay an agreed amount for the use of a brand, expertise and other business tools.
They form a reliable partnership program based on the principles of mutual benefit. The parent company receives additional income from the sale of the right to use the brand, the ability to increase and increase awareness and to open up new regions. In turn, the franchisee, who has no experience in a particular field, can work under a household name, use technology that has already proven its effectiveness, and not risk losing the original investment.
What is a franchise and how does it work?
The word franchise means permission to trade. For example, the 33 Medveda company produces waffles that are in demand in the consumer market. Special devices have been developed that have proven efficiency, and there is a desire to open new points, but financial assets are insufficient for further development. This creates the need to sell the franchise.
After submitting an advertisement, the business owner receives offers of cooperation. A young entrepreneur with a start-up investment wants to enter the market under the name "33 Bears", which is known in his town. He is ready to pay to join the franchise network, deduct regular payments after making a profit, use the recommendations of the parent company and work according to the established rules. In return, he receives a number of advantages over newcomer companies that are trying to conquer a niche themselves. "33 Bears" has already proven its effectiveness, so that the franchisee has minimized the risks and can work with a proven model for doing business in retail.
There are several ways to work together: the franchisee makes waffles independently by buying equipment, or simply sells them by buying products from the franchisor. In addition to production technology, he can draw on many years of experience, business support and consulting support from his partner. Thus, the franchisee skips the process of becoming, minimizes risks.
Today's stats for small businesses are disappointing: half of newly opened retail businesses cease operations before they have been working for a year. Another 20% of the rest will be closed over the next 2-3 years. In conditions of fierce competition and the oversaturation of the market, the strongest survivors who has many years of experience or successful business systems.
Popular and stable companies spend large investments in advertising and branding annually. A lot of resources are devoted to informing a prospect of the location of the point of sale. When buying a franchise in retail, a franchisor usually delivers a brand book with advertising material. In addition, she is interested in promoting her partner - the franchisee - which is why she offers all kinds of support on multiple levels. She often helps with the formation of an assortment line and chooses a location for a future point of sale.
The history of the "franchise" concept
The term "franchise" was first used in 1851. The founder of this partnership in the field of trade can rightly be regarded as the company "Singer", which is a manufacturer of sewing devices. It was the first company to sign agreements with partners regarding the right to sell and provide services for the company's products in the specified area of the United States.
At that time, Singer established a new sales and advertising model that formed the basis for the retail franchise. After that, such a partnership began to develop in the automotive industry, which passed into the hotel and restaurant business during the World War. However, the big breakthrough came in the 50s after the opening of the McDonald's network.
In 2000 more than 8,000 franchisors worked successfully in the world trade market. Today there are 18,000 franchisees and more than 1,500 million franchisees.
What does a trade franchise cost?
If you want to work on a franchise company in retail, you have to pay to use the brand. The monetary equivalent in this case depends on the pricing policy and the requirements of the franchisor. Regardless of the specifics of the business, whether it is a business or not, there are two types of payments:
- - one-time payment for work under the chosen brand. The partner pays for this when the contract is signed. Their size depends on the specifics of the franchisor. It can be different - from hundreds of dollars to hundreds of thousands of dollars. The size of the payment is influenced by brand awareness and the size of the deal. For example, opening a software supermarket will be much higher than opening a new Cheburek store.
- Royalties are regular financial deductions in trade from the franchisee's sales. The amount of these contributions can also vary depending on the requirements of the franchisee, usually 3-10% of sales.
advice: It cannot be argued that royalties and lump sums are purely a purchase of the right to use a trademark. In addition to him, the franchisee receives support - advisory support, recommendations on how to open a point (from the design of the premises for trading to technologies that only need to be adapted to their conditions and requirements).
Advantages and disadvantages of franchise cooperation in retail
Franchise partnerships have both supporters and opponents. The huge popularity of such a mechanism for doing business speaks for a number of advantages, but like any other model, it is not without its drawbacks.
For a franchisee, a commercial franchise business management system means that you have your own business and professional support. A number of advantages can be distinguished:
- A ready-made business that practically guarantees a stable income. The partner can evaluate the effectiveness by studying the activities of the parent company. If it has established itself in the national or even international market, it is asked, is actively developing, why not consider one of them and buy one?
- Buying a franchise is a reliable way to navigate a specific niche in retail and grow your business.
- By signing a retail franchise agreement, a partner receives the right to work under a well-known brand. There is no need to spend resources and time promoting your business and conducting marketing activities. The franchisor has already done all of this.
- Support of the copyright holder - since the franchise seller himself is interested in the success of the new company, he will, in particular, initially provide comprehensive support. The level of support depends on the company itself. This can be staff training, the provision of promotional material, assistance in concluding a rental agreement, legal assistance, etc.
- Providing the knowledge base and valuable information you need to get started. Not every inexperienced entrepreneur starting their own business can get such information - this is an analysis of the market, competitors and consumer demand.
- A retail franchise is not just about instructions and work plans. Cooperation requires a constant partnership, which a beginner lacks.
In addition to obvious undeniable advantages, the model is not without its disadvantages:
- Additional financial costs. The payment of license fees and flat fees can be very high. With that money, you can start your own business. Therefore, many do not want to overpay and start their own business.
- Compliance with strict regulations. After signing a commercial franchise, the franchisee must follow the established rules. You can refer not only to the specifics of the design of the premises, but also to the selection of the range, customer policy and the choice of suppliers. Some requirements may not be comfortable for the franchisee, but they have an obligation to meet them.
- Regular quality control. Since the parent company cares about its reputation, it regularly reviews the activities of its franchise branches.Constant checks can slow down your activities.
- Closed supplier list. Many franchisors specify specific suppliers that the franchise buyer should work with. In some cases this is impractical due to the territorial location or regional characteristics.
- Possibility to terminate the contract unilaterally. If, in the opinion of the franchisor, his partner does not comply with the terms of the contract, he can terminate him.
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A retail franchise is suitable for those who are not starting out on their own and want to protect themselves by getting support from the information resources of a better known company. This means that in this case, no resources are needed to promote the brand because the parent company has already done so. In this case, you will have to sacrifice some degree of independence and give a portion of your proceeds.
In contact with
The trading business is currently very popular with emerging entrepreneurs in Moscow, St. Petersburg and other regions of Russia. This is mainly explained by the fact that the vast majority of them, trying to get their position in the market, prefer to work with more experienced entrepreneurs. To do this, they acquire various types of retail franchise businesses. The time of the financial crisis is particularly beneficial for buying a boutique in a franchise. Buying a franchise business for inexperienced businesspeople also depends on the need to increase sales, build a stable customer base, and reduce costs.
Those who do decide to start their own retail franchise boutique will choose the most appropriate retail franchise based on the size of the initial investment, payback time, and the break-even speed.
Benefits of a retail store
The most important benefit for the franchisee is saving their own money. In addition, they gain marketing, accounting and legal support from franchisors who already have experience in trading and have some market influence.
The vast majority of franchisor organizations offer free advice, selection assistance, and training.
It is possible for franchisees to create their own franchise networks. This is particularly relevant in cases when it is intended to work not only in large cities, but also in small settlements. For a franchisee, this is much more effective than joining an existing franchise network.
Retail franchise catalog
The business catalog contains a variety of trading company and boutique franchise offers for those who want to buy a trading company. The most popular retailer franchises featured in the catalog today are:
- a chain of boutiques made of flax and sheep's wool "Modnaya Ovechka";
- auto parts salon "Korika-auto";
- men's clothing salon "Circle Boutique";
- handmade shoe salon "Migliori";
- network of auto parts stores for foreign cars "Auto-Koreets", "Auto-Japanese".
If you are interested in the offer of a specific organization from those listed in the catalog, you can go directly from the catalog to the official website of this organization for more detailed information on the terms of cooperation, the amount of the initial investment and the amount of license fees, requirements for franchisees.
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