What is Franchising?
1. Franchising is basically a partnership between a brand (the franchisor) and an individual or in some cases another brand (the franchisee), for the purpose of distributing a product or service in a given market.
2. A franchise partnership is created to be mutually beneficial for both the franchisor and for the franchisee.
For the Franchisor:
Using the franchise model allows companies to expand rapidly into new markets at a lower cost and risk than through company-owned-and-operated unit expansion. This is because much of the set-up cost is absorbed by the franchise fee paid by the franchisee upon entering into the franchise agreement.
In addition, having a locally-owned franchise unit is advantageous as the franchisee generally knows the local market conditions and can adapt more readily than through remote management. Finally, a franchisee shares in the success and profits of the franchisor often making them more motivated for success than a standard employee manager.
For the Individual Franchisee:
Entering into a franchise agreement has a number of benefits for budding entrepreneurs, including the following:
A franchise provides the opportunity to establish and run your own business but with the added benefits associated with a ready-made business model.
A franchise gives the franchisee the opportunity to sell an established brand and benefit from all associated brand recognition.
A franchise allows franchisees to keep the majority and occasionally all of the profits from their individual franchise unit.
Most franchises provide set-up support, training and ongoing assistance to franchisees within their partnership network.
Many franchises allow franchisees the flexibility to operate and market their own business in a way that suits their locality.
For the Company Franchisee:
Entering into a franchise agreement can allow an existing business to expand upon and enhance their current market offering, align themselves with a more established or niche brand and benefit from the expertise of the franchisor's business.