What Is a Franchise, And How Does It Work? – Examples, Benefits & More
What is a franchise? – If you want to start with a franchise, you will be able to get the benefits of an already successful brand and an in-demand product. Furthermore, you can also receive various tools and guidance from the franchisor, who wants to see you succeed in the local area that you are to operate in. All you have to do is pay an amount to the franchisor and get the licence to operate under its name.
In this article, you will learn about franchises and get an understanding of the working of a franchise. Furthermore, you will also learn some of the major characteristics of a franchise. Next up, we will discuss the major types of franchises with examples. Finally, you will learn the essential pros and cons of a franchise for both the franchisee and the franchisor.
What Is A Franchise?
According to Investopedia,
“A franchise is a type of license that grants franchisee access to a franchisor’s proprietary business knowledge, processes, and trademarks, thus allowing the franchisee to sell a product or service under the franchisor’s business name. In exchange for acquiring a franchise, the franchisee usually pays the franchisor an initial start-up fee and annual licensing fees.”
When a business wants to increase its geographical reach for a higher share of the market, one of the ways it can do this is by franchising its brand name and product. The franchising entity is called a franchisor, while the individual or group that buys the franchise from the franchisor is called a franchisee.
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Understanding A Franchise – How Does It Work?
According to Wall Street Mojo,
“Franchising definition refers to a license or an agreement between two parties, which gives an individual or an organization (the franchisee) the right to market goods and services using the trading techniques and brand name of another organization known as the franchisor. Technically, the contract binding the franchisor and franchisee is the ‘franchise.’”
The franchisee basically gets the right to sell the franchisor’s goods while using the business model of the franchisor. Any advertisement or marketing efforts of the franchisee are set by the franchisor in most cases.
What Are The Major Types Of Franchises?
As per the observations in an article on Hubspot,
“A franchise involves a mutually beneficial relationship where the franchisor (company) offers an array of support to the franchisee in exchange for recurring royalty fees. Through this relationship, the franchisee (individual) can expand the parent company’s reach and get more of the commercial product to more customers.”
However, to understand franchises better, you will need to get an idea of their types:
1. Product Franchise
Here, the franchisee makes use of the brand name, products, trademarks, etc. of the franchisor. Here, the main brand allows third-party operators to market and distribute the products of their brand by signing a contract.
Furthermore, the franchisee has to pay an initial fee to the franchisor. However, the franchisor is in control of the way in which the franchisee distributes the product. An example of a product franchise is any automobile producer or a soft-drink manufacturer.
2. Business Format Franchise
This type of franchise uses a particular business format, as well as the best practices of the franchisor, to produce the product. The franchisor basically comes with an established business model and guides the franchisee with ways to launch and operate the business.
The biggest examples of such types of franchises include fast-food sellers and restaurants like McDonald’s, KFC, Subway, etc.
3. Manufacturing Franchise
In this type of franchise, the franchisor provides the franchisee with the rights to produce products under its trademark and brand name. Some of the food and beverage companies also maintain their business with this model.
Biggest Pros And Cons Of A Franchise
The following are some of the major pros and cons of franchises which you must get an idea of:
Pros
Here are some of the major pros of a franchise:
- Since the franchisor’s network increases, it helps to increase the goodwill of the brand.
- As franchisors get bigger, they tend to know the different needs and demands of a large number of customers.
- Franchisors also tend to get valuable feedback based on the choices of customers and the popularity of a product, which further helps them to cater better.
- The franchise can expand its distribution chain pretty quickly.
- The franchisee does not need to promote the product a lot since the brand’s name is getting more famous.
- Since the franchisee sells its products under a well-established brand, the risk for the franchisee becomes lower.
- As the franchisee makes a financial investment in the franchise, it becomes a source of capital for the brand.
- The franchisor can get local knowledge of the business environment with the help of the franchisee.
- For franchisees, the rate of success is higher since they work on a proven business model.
Cons
Here are a few cons of franchises that you must be aware of:
- The franchisor has to depend on the performance of the franchisee for success in the local area. If the franchisee is not capable enough, it can tarnish the business image of the brand.
- To help franchisees set up business in the local area, the franchisor needs to provide valuable resources.
- As franchisees get a lot of details from the franchisor, there is a risk of information leaks to competitors.
- For the franchisee, there are a lot of restrictions from the franchisor since the former must stick to the tried and tested business plan. They also need to stick to a fixed marketing and advertising model.
- If the brand is successful and trendy, to get rights for a franchisee, one must pay a substantial amount for the franchise.
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Wrapping Up
Hope this article was helpful for you in getting a better idea of what is a franchise and how it works. You can see from here that although there are many advantages and disadvantages, franchises are popular with some of the big brands.
If you are looking to take up a franchise from a renowned franchisor, consider doing research, and find out whether it fully suits your local area and demands or not. Do you have any more to add to this article regarding franchises? Share your ideas with us in the comments section below.
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What Is Continuity In Business, And Why Is It Important?
What is continuity? - In business, continuity means that the business is implementing procedures so that the organization can still operate near normal during a disaster or post-disaster. The disaster can range from natural disasters and man-made disasters to cyber-attacks and network errors. Hence, businesses create continuity plans where procedures of what to do is well-documented. In this article, you will learn about what is business continuity and what are the major features of business continuity planning. Then, we will share with you the importance of business continuity planning and how your business can benefit from it. Then, you will also learn about the major constituents of continuity in business. Hence, to learn more about business continuity read on through to the end of the article. What Is Continuity In Business? According to Investopedia, “A business continuity plan (BCP) is a system of prevention and recovery from potential threats to a company. The plan ensures that personnel and assets are protected and are able to function quickly in the event of a disaster.” A business continuity plan is involved in creating a prevention and recovery system for the business so as to deal with the potential threats to the company. Apart from that, the continuity plan also helps to protect the assets and personnel of the organization and ensures that the organization functions appropriately. A business continuity plan is also strongly tested so that there are no weaknesses in the system. This shall ensure that the organization can be able to take the right steps at the time of disaster. It is also important to define all the risks that can possibly affect the company at the time of disaster. Importance Of Continuity In Business Having a continuity plan is one of the most important steps that you can take for your business. The plan basically makes you look at the organization as well as yourself. According to TechTarget.com, “The plan should enable the organization to keep running at least at a minimal level during a crisis. Business continuity helps the organization maintain resiliency in responding quickly to an interruption. Strong business continuity saves money, time and company reputation. An extended outage risks financial, personal and reputational loss.” The purpose of creating a continuity plan is to create and document procedures so that the company can respond to incidents. The plan is basically a guide that will give you instructions at the time of the disaster on how to operate. The guide is about how to manage and contain incidents and continue operations while there is a disruption of services. For example, let’s assume a cyber attack disrupts the business network. You will then be forced to work offline. Here, a business continuity plan will help you to consider how you will continue operations and provide services to your customers or clients. Creating a business continuity plan is also necessary to ensure legal compliance in many cases. Hence, you have to understand the regulations that can affect an organization's processes. What Are The Constituents Of Business Continuity? According to LinkedIn.com, “Business continuity planning involves conducting a complete analysis of your organization and all procedures, with clear guidelines on what to do during an incident. It also means implementing preventative measures to avoid incidents.” The following are the major preventive measures you can take to avoid incidents: 1. Cloud Backup You will need to back up all the essential data of your business to a cloud system. Hence, if your business system breaks down due to unavoidable circumstances, you can access your data from the cloud at times of need. 2. Analysis Of The Impact On Business You will need to have an idea of the impact of the various disasters on your business work processes. You will need to consider who and what can be affected in the organization. Furthermore, you need to quantify the effects of them on your business. 3. Development Of The Business Continuity Plan To do this step, you will need to have a full idea of all the processes in the organization. This way, you can develop a plan for your business and create procedures on how to respond to a disaster. Furthermore, you just need to create alternative arrangements for the continuation of the operations. 4. Implementation Of The Business Continuity Plan The implementation of the business continuity plan consists of running drills in the business by creating a dummy situation of a disaster. In addition to this, you need to do incident response training in various other scenarios. 5. Training The Staff To make your staff understand various threats that can arise at the time of disaster, you will need to provide training to your staff. This will give them a better understanding of when to do what and how to respond to the disaster situation in the organization. Apart from the business continuity plan, you will also need to have a set plan, which you will need to review, test, and update on a regular basis. In addition to this, you will also need to communicate responsibilities to others, run practice drills, and evaluate procedures, as it is about how the personnel of the organization should act in times of crisis. Hence, as you arrange for the management of the business continuity plan, you will need to review and update policies based on practice incidents for situations when threats really emerge. Hence, you will need to create steps as per your needs and demands. Summing Up What is continuity? - Hope you have found the answer to this question. You can see from this article that continuity is just a process in business. 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