Most of us can name some well-known franchises off the top of our heads—McDonald’s, Subway, Dunkin’ Donuts—but do you really understand what is franchising?
What is franchising?
Franchising is a business model. While we tend to think of fast food restaurants when we think about franchising, businesses of all kinds grow based on the franchise model. Consider your local strip mall. It might include a karate studio, a hair salon, a children’s tutoring service and a dry cleaner. All of those businesses are likely franchises. Customers like franchises because they know that whether they are in Chicago or San Diego, the product or service provided by XYZ franchise will be consistent. Consistence builds consumer confidence.
Franchisors sell the right to market a brand along with systems and procedures to ensure a consistent product or service to individuals in order to grow market share. The franchisee invests in the franchise, and in return receives support from the franchisor, gains access to suppliers, and earns the right to operate a business marketing a recognizable brand. The agreement between franchisor and franchisee ensures business growth for the former and drives customers to the latter.
The advantages of franchising are many. In most cases, the franchisee will earn the right to market an established brand with an existing customer base. When a franchisee sets up shop, he benefits from the name recognition that creates interest in the new business. Franchises become successful by establishing proven, repeatable systems for running the business. The franchisee benefits from a roadmap for running the new business that might include procurement strategies, marketing plans and training. Compared to an independent startup, franchises can truly be turn-key businesses.
