Franchising - what is it? Business model for the development of franchising companies, forms and types

You will learn what a franchise is, what types of franchises there are, and what are the main pros and cons of starting a franchise business

Hello, dear friends! In touch Alexander Berezhnov, entrepreneur and founder of the website HiterBober.ru

Today we will talk about such a concept as a franchise.

IN lately the direction of franchising is gaining enormous popularity, and in my opinion, completely justified.

Starting your own business by purchasing a ready-made franchise gives the novice entrepreneur ample opportunities. But this method also poses some dangers.

All this will be discussed in today’s article.

1. What is a franchise - we give a definition

The classic formulation is as follows.

Franchise is a set of benefits that allows legal entities and individuals to use the brand, proprietary developments, and business model of the franchisor.

There is another definition of a franchise, I formulated it myself. It is more applicable to building a business in general.

Franchise- This paid right open a business under the auspices of a well-known trademark (brand), using its rules, technologies, way of doing business entrepreneurial activity.

This term can be described in different ways. In my definition, I conveyed the term “franchise” in simple words. Let's look at how this model works in practice.

Franchising all over the world is considered a promising option for doing business. In Russian entrepreneurship, this form of work is not yet sufficiently developed. Businesses are in no hurry to gain positive experience even in the face of increased competition. Obviously, entrepreneurs are not familiar enough with the possibilities of franchising.

What is franchising

Franchising is a method of business relations in which the first party to the agreement (franchisor), for a certain fee, transfers to the second (franchisee) the right to operate according to an established scheme. To put it simply, this is an opportunity to launch your own project, but with the sign of an already promoted company.

Franchising is a modern form of mutually beneficial cooperation that allows small companies to compete on equal terms with key market players

The term “franchising” itself comes from the English franchising, which translates as the right to something. And the term “franchise” comes from the French franchise, meaning benefit or privilege.

Although these words mean the same thing, Russian practice franchising is the organization of market relations, and franchising is contractual relations between specific partners.

Franchising, as a form of cooperation, is recognized throughout the world as mutually beneficial because it allows you to use strengths big and small businesses.

A company that stands firmly on its feet saves on organizing a regional network, thanks to which it is able to provide its franchisees with high discounts on goods. And the start-up company earns its first capital.

In the United States, franchising in the “pet services” segment is gaining popularity. For example, the Dogtopia franchise provides boarding house services - kindergarten for dogs. The company works to ensure that animals do not feel sad and develop both physically and socially. Dogtopia currently has North America already 43 points.

The Dogtopia franchise has helped American animal-loving entrepreneurs open profitable businesses

Franchisor's rights

Unofficial statistics indicate that today the franchise business supplements domestic GDP by only 1%. For comparison, in the USA this figure reaches 10%. This difference indicates not only the low awareness of domestic businessmen, but also more stringent franchising conditions for Russians.

By granting a franchise, the franchisor reserves the right to own:

• patent;
• corporate identity or brand;
• exclusive rights to any idea, etc.

Sometimes the contract stipulates the conditions under which the franchisor transfers part of its rights to partners (franchisees). In most cases, these rights are structured into packages in several areas:

• network concept - business idea, target audience, interaction with partners and competitors, promotions;
• personnel - rules for recruitment, training and work of employees, remuneration system, motivation packages;
• relations with the franchisor - rules for the supply of goods, ingredients, consumables, form and procedure for submitting reports, control measures;
• production package - supply of equipment, furniture, inventory, provision technological maps processes and accounting systems.

The composition of the franchise package depends on the market segment in which the franchisor operates, the demand for its goods/services and other factors. A businessman can choose the most suitable option for him.

The granting of a franchise occurs in accordance with the conditions specified in the contract

How to become a franchisor

In order to become a franchisor partner, several conditions must be met:

• register a trademark;
• prepare all materials that the franchisor is ready to transfer to the franchisee: from technologies and work standards to documents and office design rules;
• understand which companies or businessmen and in which regions you are looking for franchisees;
• enlist the support of lawyers and prepare a franchising agreement, which spells out all the conditions for working with the franchisee.

To understand what a potential franchisee is like, you will need skills in the field of psychology. In addition, thanks to the current development of the Internet, it is easy to study personal information to get a picture of the franchisee.

To create a franchise relationship, you need to show future franchisees your usefulness. As an example, fast food companies Subway are attracting new partners favorable conditions. Among them:

• assistance in choosing premises and opening an establishment;
• free trainings;
• food handling instruction;
• consultations and much more.

For franchising relationships, it is necessary to show potential franchisees your favorable conditions

What is a franchisee

A franchisee is a businessman or company that has leased the right to use its trademark from the franchisor. A company can operate not only in another city, but also in another state. It becomes a kind of cell of the network, functioning according to uniform rules developed by the franchisor.

The franchisee will have to bear all the costs of operating the company, as well as pay the franchisor every month. In return, the company receives a discount on specified types of goods and assistance in organizing the business.

Franchisees do not risk anything in the event of any crisis or force majeure. A reliable lifeline represented by a well-known brand will help in a difficult economic situation.

If something goes wrong, the franchisor will tell you how to correct the situation and make the business profitable

Types of franchising

There are four main types of franchising based on the methods of interaction between partners.

Commodity

Product franchising is common in the trade sector. After concluding this type of agreement, the franchisee sells the product produced under the partner’s brand and also provides warranty service for it. Such an agreement clearly stipulates the list of goods and services and the entire sales technology.

When the franchisor provides premises or tools, it provides financial support to the franchisee and organizes staff training. Main examples of product franchising - trade household appliances, cars and fuel.

Electronics stores and household appliances"Eldorado" is a vivid example of product franchising

Industrial

Industrial franchising is a company with a technology for manufacturing products under a patent, which grants partners the right to produce and sell goods under their own brand.

The franchisee receives:

• manufacturing patent;
• raw materials;
• assistance in staff training;
• supply of all necessary equipment;
• exclusive ingredients;
• product advertising.

However, the franchisor will control all activities, in particular:

• production process;
• volume of products produced;
• quality and sales plans;
• personnel qualifications.

Manufacturing franchising is widespread in the production of food products, soft drinks and tonic drinks. The main representative of such franchising is the Coca-Cola company.

Coca-Cola industrial franchising provides the right to produce goods using secret technologies

Service

Service franchising allows you to provide services to consumers under a brand owned by the franchisor. The senior partner usually:

• provides the partner with equipment;
• provides advertising techniques;
• shares marketing technologies;
• controls the work of the supervised company.

An example of service franchising is real estate agencies, beauty salons.

Apple service franchising gives you the opportunity to provide services under a well-known brand.

Business format franchising

Business format (business) franchising is different in that the franchisor transfers to the franchisee not only the rights to trade their goods, but also permission to organize this work (license).

The contract details:

• the essence of the business;
• personnel training methods;
• company interior design;
• employee uniform;
• advertising policy;
• relationships with suppliers;
• reporting.

The franchisor company monitors compliance with the operating rules. Most common in the service sector, catering, V hotel business and other sectors - McDonalds, Hilton, Yves Rocher, INVITRO.

Business franchising is more common in the service and catering sectors: a prime example of this is the McDonalds Corporation

Business franchising can be called one of the most reliable methods of doing business. When using this franchising format, the authority of the franchising company provides opportunities for expansion of the company itself and for enterprises that will use its authority to develop their business.

Advantages and disadvantages of working under a franchise

Franchise business development has both supporters and opponents. The reason for the duality of opinions is the pros and cons of its conduct.

Advantages of franchising:

• Ready brand. (It is known that when purchasing, consumers are guided not by the quality of the product, but by their liking for their favorite brands).
• Guaranteed business profitability. (By purchasing a franchise from a successful enterprise, you can understand how to achieve this success without spending money on advertising and marketing).
• Minimum costs when starting a business.
• Professional staff training. ( Special knowledge for employees - necessary condition efficiency of the enterprise).
• Support from a strong partner. (The success of its franchisees is always important to the franchisor).

By purchasing a franchise, a novice businessman enters the market faster and receives his first profit

Disadvantages of buying a franchise:

• Clear rules of cooperation.
• Strict quality control. (Franchisees should prepare for ongoing inspections).
• Agreed list of suppliers.
• Non-compete. (Franchisees are prohibited from opening their own business).
• Termination of the contract by one party. (The franchisor can terminate the contract at any time).
• Liquidation of the franchisor. (Often a company leaves the market in times of crisis).

These disadvantages will become a serious problem for entrepreneurs who consider a franchise as a trial step before starting their own business.

When you purchase ready idea, everything in it is thought out for you, and with this approach you can forget how to act independently

What risks exist for franchisees?

Why Russian entrepreneurs develop franchising with caution? The authors of a scientific monograph on franchising A.D. Chudnovsky and M.A. Zhukova believe that this is due to the following factors:

• risk of unexpected termination of the contract;
• violation of territorial conditions;
• loss of ability to choose suppliers;
• dependence in pricing.

Disadvantages of buying a franchise often become a problem for entrepreneurs

How to minimize risks

If you are thinking about purchasing a franchise, it is important to take a more serious approach to choosing a franchisor. You can do this by taking the following steps:

• It is better to contact the franchisor directly rather than intermediaries.
• It is more reliable to check the data on the FIPS website (Federal Institute of Industrial Property).
• Get acquainted with the franchise agreement. (What does the franchisor provide as support? If control comes with support, there is no need to fear it).

The list of transferred rights in the agreement may change. However, the right to use the name and commercial information must be stated there.

A commercial concession agreement is a clearly and unambiguously drawn up document. It is not replaced with different papers and is not transmitted in the form of letters.

Risks of franchising for pharmacy chains

Why do Russian pharmacies almost never implement franchising? Analysts at ARENCY Pharma believe that this is due to an insufficiently developed logistics system that could promptly supply franchised pharmacies with goods, as well as the need for separate adaptation of the franchise to each region.

Only large networks with a well-functioning supply system. But in this case, most likely, franchise schemes will be offered only in those regions in which the network offering the franchise operates, since the specifics of doing business in them are already known and worked out, and adapting the franchise to new regions requires additional financial and time costs.

Only large chains with a proven supply chain can afford franchising

What other difficulties are pharmacy chains afraid of? The comments are given by a representative of a network of modern pharmacies, which has 173 points in the regions of Russia.

We abandoned the traditional franchising scheme in favor of developing agency programs, since in the classical scheme almost all responsibility is placed on the counterparty, and if a number of requirements are met, the franchisee pharmacy is given the right to use the company’s brand. In the absence of control over business processes, we cannot guarantee our customers and partners compliance with all operating standards of First Aid pharmacies.

Alexander Semenov, general manager chain of pharmacies "First Aid"

According to Alexander Semenov, with an agent program it is possible to use all the advantages of a large pharmacy chain, namely:

• apply innovative programs;
• operate automated systems;
• have full control product matrix agent, manage inventory;
• pricing and marketing projects.

As part of the agency program, it is easy to manage all key business processes and take on the main operational risks. Then the owner of the pharmacy receives a guaranteed income. This example shows that, not wanting to be exposed to risks, pharmacy chains are in no hurry to acquire franchising experience.

In the pharmacy business, franchising still gives way to the agency work scheme

How to properly design an interaction

To launch a franchise project, you will need to obtain the following documents:

• trademark rights;
• right to a service mark;
• right to commercial designation;
• exclusive right to a production secret.
  

Then you can proceed to creating a franchise agreement. This agreement contains:

• clauses on the rights and obligations of both the franchisor and franchisee;
• amounts and terms of payments;
• list of transferred values ​​(both tangible and intangible).

The agreement is being registered in Federal service on intellectual property (Rospatent). Without legal confirmation, it is considered invalid.

In addition, to register a franchise, a company will need:

• instructions for franchisees;
• a set of rules and standards for an organization.

Franchise loan

Are modern lending opportunities capable of influencing the development of franchising relationships? Can entrepreneurs who want to work according to these schemes get a loan from a bank to develop their project?

Several years ago, Sberbank announced lending to projects that use franchising when starting a business. Its preliminary list of franchises approved for lending includes the service sector for the population, for example, small restaurants, hairdressers and beauty salons, travel agencies, and early childhood centers.

Loans for start-up projects using franchising are currently provided only by Sberbank

For reference: accreditation of a franchise by a bank is a recommendation for a business model using a Business Start loan. A franchise can receive accreditation after bank specialists check its performance and payback.

The insufficient implementation of franchising in Russian realities is due to the fact that our novice entrepreneurs know little about this way of doing business. Therefore, in order to apply the features of working under a franchise to yourself, you need to calculate all its pros and cons.

In this material:

The concept of franchising

Literally explained, franchising is a type of preferential entrepreneurship. This is the name of one of the many forms of equal business relations and partnerships. In this connection, the franchisor and the small company have equal cooperation rights, sealed by agreement.

To be more precise, franchising is a type of long-term business relationship between several companies, with a few notes:

• a well-known company sells the rights to a particular product to franchisees;
• independent businesses take advantage of the franchisor's popularity.

The whole point of this system is that large company, which has proven itself well among consumers, enters into many contracts with small and, for the most part, independent firms. Thanks to this form of cooperation, independent entrepreneurs receive special rights to a product using a trademark that is already well known to consumers.

The names of the parent company and the name of the independent enterprise have a clear definition:

• franchisee- this is an independent company (or entrepreneur) that acquires from the franchisor the right to study and provide assistance in creating a business, while paying a certain fee for the operation of a well-known brand, know-how and additional systems provided directly by the franchisor;
• franchisor is a well-known company that has a widely used trademark and provides it for use by independent enterprises (entrepreneurs) for a fee, and also, in addition to the brand name, provides additional systems and know-how.

In the case of small companies that have just been created and are not yet famous, this form of cooperation is very useful and even convenient. Particular convenience is due to the fact that an independent company does not need to spend a lot of money on advertising, since the intended consumer will receive a product with a trademark that is familiar to them. The popularity of the brand and the number of possible consumers also play a significant role. Thus, the greater the popularity, the more likely the rapid promotion of the franchisee.

It should be borne in mind that the amount of services provided for an independent company will, of course, be significantly lower than the expenses for advertising and promotion of its own trademark.

Franchising interactions

As a rule, a company with a popular trademark (franchisor) does not form a connection with a single small company (entrepreneur). Instead, the franchisor creates many contracts with many different small enterprises (companies), thereby creating a whole network of its product and industrial branches. As a result, the franchisor forms small enterprises independent from the parent company that use the franchisor’s trademark.

It should be taken into account that the contract includes full compliance with all the rules, which may include:

• principle of trade;
• uniform (and other small items);
• production of products.

While the franchisee, according to the contract, follows the prescribed rules, the franchisor is obliged to provide all possible support to the independent enterprise (entrepreneur):

• provision of raw materials;
• delivery and supply of equipment;
• technology transfer;
• providing necessary knowledge all service personnel;
• additional services to assist with accounting.

The franchisee also has full rights to:

• exploitation of the trademark of the parent company;
• application of the style and design of the parent company;
• using the reputation of the parent company among other enterprises, which, to one degree or another, are equal to the franchisor.

A franchise is a variation of doing business that is provided by the franchisor to the franchisee at the time of concluding an agreement. The franchise is also called a franchise business package. Typically this package includes:

• detailed manuals for carrying out work;
• other, additional documentation that makes the transaction of the enterprises equally equal.

In the vast majority of cases, the relationship between the parent company (franchisor) and an independent enterprise (franchisee) brings equal benefits to all parties.

Franchisees are required to strictly follow the prescribed rules.

1. Conduct business according to the stops established by the franchisor.
2. Fully comply with the deductible.
3. Take direct part in all events and promotions created by the franchisor.

As a result, the franchisor provides the franchisee with everything he needs:

• attracting a mass of unique consumers;
• many new deals;
• increase in sales;
• high-quality advertising without special expenses.

Thanks to the work done by the franchisor, the franchisee does not need to compete with other independent, and not only, enterprises. This is of significant importance, since for franchisees, without support, this would be a very big problem.

The franchisor, as the parent company, is obliged to provide the franchisee with all the required assistance in running the business, so that the independent enterprise has the opportunity to carry out the operations required of it with strict regularity.

Because of this form of cooperation, a small enterprise gets the opportunity to conduct licensed, independent economic activity with maximum use of the trademark of the franchisor and its customers.

Franchisors usually undertake:

• advertising campaigns;
• delivery of products.

Under such a system, the franchisee of the agreement under any circumstances remains an independent enterprise and undertakes to pay the fee agreed upon under the agreement to the licensor for the provision of all services prescribed by the franchise. Franchisors cannot violate contracts, as this risks numerous penalties.

• legal requirement for financial services (lending) from the franchisor;
• necessary equipment (with leasing conditions);
• employee training (improvement of qualifications, additional consultation, etc.).

In a general sense, franchising is:

• business development of any type with financing;
• a way to sell a variety of services and goods.

Franchising is divided into several types:

• franchising of products - organized large networks sales of goods, with parent companies responsible for advertising, know-how, spare parts and tools;
• franchising of services - numerous companies work on this principle foreign companies: they rent premises, train employees in the necessary work skills, and provide the equipment required for production.

Features and Notes of Franchising

In a shortened explanation, franchising is a system of relationships consisting in the transfer by the franchisor (a company that is particularly popular among consumers) to the franchisee (an independent company without an established image) of a number of its products (labeling mark and style).

The franchisor, at the same time, is obliged to provide full support to small businesses:

• provide technological assistance;
• and full consultation on any issues.

Sources of income of the parent company

The franchisor receives the main profit:

• from supplier discounts;
• from the initial contributions of an independent organization;
• from advertising fees of small companies;
• from bonuses received after selecting premises and technologies for franchisees;
• from interest on loans provided to cooperation participants.

Hello, dear readers of the blog site. The term franchise (from franchise, translated as “benefit”) refers to a more complex concept - franchising.

Film franchise- very similar to the classic version, but only in relation to the media industry. A successful film appears, its characters or the world invented in it become popular and this is the beginning of the formation of a franchise (the Marvel universe, for example). The initial film essentially becomes a popular brand that can continue to be mercilessly exploited. Anyone who wishes to do this will release royalties to the copyright holder (starter).

A second film “about the same thing” comes out, then a third, a fourth. They are called sequels, prequels, remakes. But, in essence, these are “products” produced using proven and patented technology. They are less likely to fail at the box office because they have the success of the franchise's founding film behind them.

Although, the ancestor can be not only a film, but also a book, as, for example, happened with the world’s most popular media franchise about Harry Potter. And on the contrary, a book can be written based on the film, again as a franchise. Its author will receive an advantage (due to the fame of the film), but will pay a bribe to the copyright holder. All is well (except for the readers of this book 🙂).

Some terminology

This article is written as best as possible in simple language, but for reasons of saving effort and time of the author and reader, it uses some concepts from classical economics.

Let's take a look at them:

1. Franchisor is the owner of the brand. A person (or legal entity) who, under certain conditions, transfers to other people the right to conduct activities on behalf of his company. Essentially, this is the owner of the franchise.
2. – a person (or legal entity) who buys a ready-made business model and (or) brand name from the franchisor. For example, a writer (or publisher) writing a book about a film will be called such a bad name.
3. - in fact, the franchising object itself. For example, McDonald's restaurant in Moscow. It was built for money Russian investor(franchisee), but at the same time operates in compliance with a number of strict conditions and standards.
4. Royalty, lump sum and advertising fee are the names of the investments made by the franchisee.
   1. business entry fee.
   2. monthly payment in favor of the franchisor (right holder).
   3. Advertising fee is an annual payment in favor of brand development.
   4. In addition, there are also classic investments.

Where did franchising come from?

Franchising is a relatively new form of doing business. It appeared in America in 1850 after the invention of the Singer sewing machine. The new product was so popular that the inventor simply did not have enough production capacity to provide all customers with goods. Then he sold several large factories the right to produce cars and sell them on behalf of the Singer brand.

The method was far ahead of its time, so the next major franchises did not appear until a hundred years later. Companies were among the first to practice franchising McDonald's and Ford.

Fun Fact: What's notable about the franchise is that it was a product of the 1930s recession (the Great Depression in the States). To avoid bankruptcy, campaigns began selling the right to operate on behalf of their brand. That's how we survived.

The essence of a franchise business

Let's consider the principle of operation of this method of doing business. using the example of opening a brand franchise"Delicious Coffee" Brand, of course, is fictitious (and please consider all coincidences to be an accident), but it is suitable for clarity of calculations. Prices are taken from a similar, real-life chain of coffee shops (which one is it?).

So, a franchise is a small (or large) enterprise, the work of which includes the following features.

Requirements for a franchisee (person renting a business model)

Even before entering the business, the franchisee is required to prepare the foundation (base). In the case of our cafe, taken as an example, this is:

1. An empty room with an area of ​​8 to 15 square meters in shopping center or on the ground floor of a building located on a busy street.
2. Material base (monetary foundation) - even before purchasing a franchise, the investor is required to provide bank statements (what if he is naked as a falcon and is only puffing out his cheeks).

After the franchisor is convinced of the reliability of the future partner, the second stage of franchise development begins - making investments.

Responsibilities of the franchisor (owner of the brand, business model, technology)

The franchisor undertakes to fulfill a number of pre-agreed conditions.

Let's consider his actions, depending on the investments made by the participants of this scheme (junior partners, i.e. franchisees):

1. Lump sum payment (for entering a business under this scheme) – 100,000 rubles. Where is he going? For a hundred thousand lump sum fee, the franchisee receives the rights to open a coffee shop under the “Tasty Coffee” brand, as well as instructors for staff, his personal instructor and even a manager who will manage the entire process of preparation and opening (and will also establish ). Service, however.
2. Investments in development– 250,000 rubles. What is it spent on? Having received another two hundred and fifty thousand, the franchisor (copyright holder) begins work on the premises, namely: its major renovation, the purchase of branded equipment and bringing the design to the required standard.
3. Advertising fee– 50,000 rubles. How are these funds spent? Having collected 50 thousand rubles from each owner (acquirer) of the franchise, its owner (not himself, of course, but specially trained people) conducts an advertising campaign with this money. However, not every outlet separately, but the entire brand as a whole.

It is important to understand that in this example the investments are described separately for ease of understanding. In practice, a lump sum contribution and investments in development are usually issued in one package. Most often, the franchisor insists on the immediate start of work immediately after transferring the rights to the brand.

Interesting fact: the interesting thing about franchising is that it is a very diverse business. There are franchising schemes for selling flowers, making pipes and organizing hotels. Essentially, this is a model that can be stretched onto any business framework (see the example of the film industry given at the beginning of the article).

How does a franchise differ from a regular business?

Let's return to our cafe from the non-existent “Tasty Coffee” chain. After the completion of repair work and staff training, the establishment begins to operate.

Overall this similar to the work of an ordinary private business, but with some reservations. Let’s talk about them in more detail and, for clarity, compare all this with conducting ordinary business(for example, individual entrepreneur).

So you understand, right? With the help of a franchise, you stand “side by side with the big guy.” You don’t feel the wind so much, he will support you if anything, and the stability of your business is many times higher (15% of failures when working on the franchising principle and 85% when working according to the usual scheme during the first 5 years - statistics are harsh).

It is clear that such support comes at a price. If you like risk, choose the usual scheme. Do you prefer a bird in your hands - good decision there will be a franchise (though not ideal).

Now about the sad (or joyful?) A franchise can be closed either planned or unscheduled.

1. Planned closing a franchise. Like any type of lease, a franchise opens for a certain period. If, upon expiration of the contract, the parties have no claims against each other, and the franchisee has no desire to renew the contract, the scheme simply ceases to operate.
2. Unscheduled closure of a franchise. A franchise can be closed ahead of schedule in the event of bankruptcy of one of the parties or on the initiative of the franchisee. In this case, the franchisee is required to report the closure six months before cessation of activity. This figure is universal for all contracts.

Speaking of risks, one cannot help but consider the following point.

Advantages and disadvantages of franchising as a business model

Franchising is a direct business model that works without intermediaries (which is good), so it is advisable to consider risks and benefits of only two sides.

For the franchisor (copyright holder)

For the franchisee (tenant)

Interesting fact: the largest franchising company in the world is a restaurant chain fast food Subway. It has more than forty thousand franchises in the world.

Types and examples of franchising

Despite the fact that all franchising as a whole has the same concept, there are several types of this business model:

1. Commodity.
   It is also the most common. The franchisee sells goods under the franchisor's brand. For example, Nike store in Kyiv or Adidas in Warsaw.
2. Industrial.
   The very first one to appear on the market (remember Singer). The franchisee, using the franchisor's technology, produces the product. For example, Apple and Samsung factories in China, Audi plant in Russia.
3. Service.
   It resembles a commodity one, only the franchisee sells services, not goods. For example, a European chain of dry cleaners or a chain of private music schools.
4. Back.
   The reverse can be any of the above types of franchising. Its essence is that the franchisor already pays the franchisee a royalty (in this case, 70-80 percent of turnover).

Good luck to you! See you soon on the pages of the blog site

You might be interested

Franchising - the goal and essence of the process, who benefits from it and what may be the disadvantages of such a business organization scheme Lump sum payment: definition, purpose Royalties are similar to rent in some areas of business. What is business Purchase ready-made business: advantages and disadvantages
Outsourcing - what is it in simple words Rebranding is the evolution of a brand Business ideas of 2019 - how to find yours, TOP business ideas with minimal investment, which are not yet in Russia Optimization: what it is, purpose and optimization methods Business from scratch - where to start, ideas and ways to implement them

In a general sense, franchising is the "renting" of a trademark or commercial designation. The use of a franchise is regulated by an agreement between the franchisor (the one who provides the franchise) and the franchisee (the one who receives it). The content of the agreement can vary, from simple to very complex, containing the smallest details of the use of the trademark. As a rule, the agreement regulates the amount of royalties for using the franchise (it can be fixed, one-time for a certain period, representing a percentage of sales). There may be no requirement for contributions, but in this case the franchisee undertakes to purchase a certain amount of goods/works/services from the franchisor.

Conditions for using a trademark/brand may serve as a separate clause in contracts. These requirements can be very simple (for example, the franchisee has the right to use a brand in a specific industry) or strict (for example, the franchisee undertakes to use the equipment in the store in strict accordance with the franchisor’s requirements - from the size and color of the shelves to the staff uniform).

• the franchisor receives royalties for the use of its trademark;
• the franchisee pays an initial fee for the right to become part of the system;
• The franchisor provides the franchisee with a business management system.

History of franchising

Prototype modern system Franchising is considered to be the system of sales and service of Singer sewing machines. Founder worldwide famous company"Singer Sewing machine company" Isaac Singer became the founder of modern franchising. Beginning in 1851, Singer's company entered into a written agreement with product distributors for the transfer of a franchise; the agreement transferred the right to sell and repair sewing machines in a certain territory of the United States.

At the time of organizing the world's first full-fledged franchise system, Singer's company provided mass production of sewing machines, allowing it to maintain the most competitive prices, but at the same time did not have an established service system that would allow organizing maintenance and repair of machines throughout the United States. In this regard, a franchise system was created, which provided financially independent companies with exclusive rights to sell and service sewing machines in a certain territory. These first franchises were essentially operating distribution agreements with the additional responsibilities of the franchisee (dealer) to service the machines.

Modern franchising experienced a real upsurge when General Motors began to use franchise dealerships.

Classic product franchising, which distributes goods and services in a franchisor-franchisor system, began to change only in the 50s of the last century.

In Russia, franchising begins to become widespread only in recent years. In particular, most of the chain of discount food stores “Pyaterochka”, part of the communication stores of the company “Euroset”, the electronic directory map “2GIS”, and the company 1C operate under the franchising scheme.

Franchising under Russian law: commercial concession agreement

In Russian legislation, franchising relations are regulated commercial concession agreement.

Under a commercial concession agreement, one party (the copyright holder) undertakes to provide the other party (the user), for a fee for a period or without specifying a period, the right to use in the user’s business activities a set of exclusive rights belonging to the copyright holder, including the right to a trademark, service mark, as well as rights to others objects of exclusive rights provided for in the contract, in particular to a commercial designation, a production secret (know-how).

The commercial concession agreement provides for the use of a set of exclusive rights, business reputation and commercial experience of the copyright holder to a certain extent (in particular, with the establishment of a minimum and (or) maximum volume of use), with or without indicating the territory of use in relation to a certain area of ​​business activity (sale of goods received from the copyright holder or produced by the user, the implementation of other trading activities, performance of work, provision of services).

The parties to a commercial concession agreement may be commercial organizations and citizens registered as individual entrepreneurs.

Advantages of franchising

Benefits for the franchisor

For the franchisor, the priority benefit of franchising is that it receives, albeit a small, but guaranteed stable volume of sales of its products, since franchisees are obliged to buy from it certain quantities of goods, consumables or other products/services specified in the contract. If the income is stable, then it can be successfully planned for the future, which means developing new directions.
With all this, the franchisor is not burdened with difficulties associated with a number of expenses that ordinary players have - training and selection of personnel, quality control, etc. In addition, the development of a franchise network is excellent brand advertising that does not require special financial investments.

Benefits for franchisees

Using a proven business system

Before offering his franchise on the market, the franchisor must “fine-tune” his business system, work out all business processes and prove the effectiveness of his business. Moreover, in order to effectively develop a franchise network, the franchisor must have a flagship enterprise, on the basis of which business cloning occurs. Therefore, by purchasing a franchise, an entrepreneur acquires a proven and proven business model that has proven its effectiveness.

Opportunity to open your own business

Despite the fact that the franchisor has a certain degree of control over the franchisee, which is aimed mainly at increasing the efficiency of partners by identifying possible problems of partner enterprises at the stage of their inception, the franchisee retains economic and legal independence.

Industry choice

Potential franchisees have the opportunity to get acquainted with the franchisor’s business before the investment stage own funds. This can be done based on open information - commercial offer the franchisor and its operating enterprises, both its own and its partners.

Opportunity to reduce risks

By opening a partnership enterprise, with a well-developed franchising program, the franchisee becomes part of the “family”, that is, unlike an independent enterprise that opens, the franchisor does not leave the partners alone with the many problems and risks of a start-up business.

Successful entry into the market is guaranteed

One of the main requirements for a franchise business is the demand for the goods or services provided by the franchisor company. Therefore, by purchasing a successful business idea and starting its activities under an already well-known brand, the franchisee already has a circle of consumers loyal to the brand by the time they open their enterprise.

Minimal advertising and marketing costs

Due to the fact that the franchisee begins to operate as part of a well-known network, his initial advertising costs are reduced to providing advertising for the opening of a franchise enterprise in the local market. The same is true with current advertising, which is aimed at “promoting” a franchise network in a given region.

Gaining access to the franchisor's knowledge base

The franchisor, providing his business system to partners, conveys not only a well-functioning mechanism, but also “instructions” for its effective use. The franchisor trains its partners on how to effectively build a business, taking into account all its specific features.

Guaranteed supply system

Since franchising, as a rule, is a priority activity for companies, and partners - franchisees - have the most best conditions, the franchisor strives to provide this area with the greatest resources, including delivery issues.

Disadvantages of franchising

• Franchisees are forced to follow the rules and restrictions set by the franchisor, even if they do not bring maximum benefit to the business.
• Franchisees are often required to purchase raw materials and products from suppliers designated by the franchisor, which may limit their access to the free market and force them to purchase raw materials and products at inflated prices.
• Franchisees may be subject to strict restrictions on exiting the business, including prohibiting the opening of competing organizations for a certain period or in a certain territory.
• Franchisees rarely have influence over centralized marketing and advertising matters, but may be forced to pay for centralized marketing and advertising campaigns. Thus, their funds may not be used in their best interests.

Well-known franchisor companies

There are many companies that provide turnkey business. It should be noted that the name “franchisor company” does not mean that the company offers all its capacities for franchising; it may have a certain number of objects in its “personal” property.

Notes

Sources

Growth strategy"

• Stephen Spinelli Jr., Robert M. Rosenberg, Sue Burley Franchising = Franchising: Pathway to Wealth Creation. - M.: “Williams”, 2006. - P. 384. - ISBN 0-13-009717-9

See also

Links