Franchising has proven itself as a way to promote a business. More than 70% of firms that develop independently barely overcome the 2-year milestone. According to statistics, the use of this system makes it possible in 80% of cases to overcome the 5-year milestone and continue to work with a profit.
What is a franchise in simple words
Franchise in French "frachise" means "privilege". Franchising is working under someone else's brand. For example, the atelier sews dresses. One situation, if the studio is engaged in the promotion of its business on its own, and another, if the label of a well-known company is attached to the clothes. In the second case, the goods will be sold out faster, and the profit will be greater. You cannot simply attach a label of a well-known brand to clothes. It is illegal. In Russia, for this they can be imprisoned for five years. This is what they did in China 20 years ago. Today, the program "Chinese = quality" is working there. Goods of famous brands are sold under the franchise scheme. It's legal and profitable.Franchise types
Franchising is not only the transfer of trademark rights. Based on the nuances of using the brand, there are three types of contracts; let's consider them in more detail. Commodity franchise. Most often, products are sold according to this scheme. The agent sells products of a well-known brand. The latter regulates prices, quality and bears the cost of advertising. The agent's costs are reduced to the selection of the hall, staff training and product placement. The profitability of the business is low (a well-known brand does not sell products at a discount), there are severe restrictions (the manufacturer sets minimum purchase lots). There are no business return guarantees. Even the distribution of a well-known brand does not guarantee a crowd of buyers. Manufacturing franchise. The agent gets the right not only to sell, but also to manufacture products using a special technology. It makes sense to conclude such an agreement only if there are good production capacities. Otherwise, the costs will not pay off. Service franchising. The agent gets the right to use other people's technologies. He will run his own business, not distribute other people's goods. The main disadvantage is the high costs at the start - the purchase of materials, staff training, preparation of premises, etc.How does a business franchise work?
The success of the business lies in the fact that a large company gives the right to a small entrepreneur to distribute his brand in his region. At the same time, it provides full or partial support to the agent. For this, the businessman pays first a fixed cost, and then royalties - a percentage of the sale.Franchisors, franchising and franchisees
From a legal point of view, a franchise is a contract for the lease of a trademark. An agreement is drawn up between the tenant and the manufacturer, according to which the first party receives the right to use the commercial brand under certain conditions. The entrepreneur (franchisee) has the opportunity to use other people's developments and experience. The manufacturer (franchisor) strictly monitors compliance with the technology, and sometimes even supplies materials. Franchisers are interested in the success of their products. Therefore, they prepare training materials for franchisees. In the event of an unforeseen situation, the agent can always contact the manufacturer for advice, send their staff for training in another country at half price or free of charge. All costs for brand promotion in a new country are also covered by the manufacturer. In some cases, franchisees even receive equipment for the manufacture of products, but on the terms of a subsequent purchase. All this is described in detail in the contract.
Examples of globally promoted franchises
The world's first franchise agreement was signed by SingerSewing owner Issac Singer. In 1851, he signed an agreement with product distributors on the transfer of the right to sell and repair sewing machines in a specific US territory. The world's first hotel company, HolidayInn, entered into the most expensive franchise. It happened in 1952. Today the company leads the ranking of the largest hotel chains and "manages" 4,500 hotels in one hundred countries. The minimum franchise price is $5 million, and the lump-sum fee is only $7,000. Indonesia is considered the poorest country in the world. More than 80% of the population lives below the poverty line. But this does not prevent them from using communication services. Therefore, the local operator RUMA, which distributes terminals for payment for communication services, started selling franchises. The "Business in a Box" product is a refill point. You can buy it for $23. Considering that the population of the country spends $2.50 on food, this is a lot of money. During the first year, the company sold 1.5 terminals. At the same time, 90% of buyers are women. The largest franchise in the world is not McDonald’s at all. In 1965, Fred De Luca opened a cafe called Subway. The success of the institution led to the fact that since 1974 the founder began to distribute franchises through his distributor. It took 41 years to create a network of 43.5 thousand restaurants. Since 2015, 673 cafes of this brand have been opened in Russia. Subway was able to overtake McDonald's because it used a different business strategy. You can open a restaurant in a rented room. All products are kept fresh on display and cooked in front of customers. The fashion for healthy food only contributed to the spread of the brand. The most famous franchises in Russia are: the TOM TAILOR clothing store, the INVITRO diagnostic laboratory, the TELE2 operator, the SUBWAY cafe chain. Entrepreneurs from other regions are trying to repeat the success of domestic companies. The cost of Russian franchises is comparable to the price of popular international brands. For example, those wishing to open a chain of restaurants "Shokoladochka" will have to pay 70 thousand dollars as an initial contribution and then transfer another 7% of the profit every month. It's incredible, but buyers of the 1C program also become franchisee dealers. As a result, the company has more than 20 thousand agents, but they also go bankrupt by the thousands.
How to determine if a particular franchise will be profitable in your area
In most cases, this business is profitable. Of the “single” entrepreneurs, 50% survive until the end of the first year, and only 20% overcome the five-year milestone. Of the 100 companies that start to work on franchising, 80 enterprises overcome the 10th milestone. If you look at the statistics for a longer period, it turns out that the number of cuts for franchises and singles is the same. Independent businessmen, having overcome the five-year milestone, become stable companies. And franchisors always have the risk of falling under the “domino effect”. In the event of the collapse of the main company, all other organizations will also fail. It is necessary to study in detail the segment of the company's activities. The most "safe" franchises are fast food outlets, fitness centers and laboratories. Initial expenses of 1.5-2 million rubles. they will pay off in a year and a half. A franchise is essentially the purchase of rights to sell products of a certain brand, the provision of services. Therefore, first of all, you need to pay attention to the franchisor. He should be interested not only in making a profit, but also in expanding his network. You can understand this already at the stage of negotiations with the manager. If he is not interested in the peculiarities of the work of the region, but he simply advertises the brand, then there is reason to think. The conditions of purchase are of great importance. The franchise price should be comparable to the final effect. The franchisee must have the exclusive right to provide the brand in a particular region. Otherwise, there is a risk that a company with exactly the same sign will open next door. Whether in such a situation the first buyer of the franchise will be able to exit the transaction will depend on the terms of the contract. Let's consider an example of a successful franchise. In the market for the provision of health and beauty services, the INVITRO company has been operating for more than 10 years. In addition to an excellent reputation, the organization has established itself as a good working environment with franchisees. In 2016, the franchise network included more than 350 medical offices. The main company provides its subsidiaries with free consumables and delivery of samples of biomaterials. You do not need to have a medical degree to qualify for brand distribution. It is necessary to purchase a room of a certain area. All hired personnel will be trained by the franchisor. The company offers three options for cooperation, which differ only in the amount of payments. The initial contribution under the program "I'm flying" is 100 thousand rubles, "Gorodok" - 250 thousand rubles. and "Standard" - 575 thousand rubles. The costs pay off after 2 years of work.How to find and buy a franchise
First you need to choose a brand that is congenial to the agent himself. It is very difficult to delve into a matter that you do not like. Having decided on the scope of business, you should talk with franchisors. Read the terms of the program. Return on purchase is calculated based on the size of the lump-sum payment and monthly royalties. Don't chase the price. Cheap does not mean bad. The size of the franchise ranges from 5-25 thousand dollars. Young franchises set affordable prices in order to attract more companies at the stage of development. The services they provide are not inferior in quality to the leaders. Study all the terms of the contract in detail. Especially the clause regarding the termination of the agreement. The agent must be able to exit the business early without financial loss. Don't forget about taxation. When purchasing a franchise from a foreign company, you need to clarify who will pay VAT. In no case should you enter into an IP contract. Otherwise, you will have to answer with all your property. You should start a business with a ready-made team. The owner does not have to deal with all issues on his own even at the first stages. Some help can be obtained in franchise stores. These are brokers of this segment that represent a particular brand. They will help you choose a franchise based on the wishes of customers, check the authenticity of the brand and deal with paperwork. The most important thing is to study the contracts in detail. At large firms, lawyers draw up contracts "in favor of the company." Before concluding a transaction, you should seek the advice of an experienced lawyer. Better yet, invite him to negotiate.
Today, more and more popularity and distribution is starting a franchise business, because it allows you to avoid many organizational issues that take a lot of time, as well as get a well-functioning model of a ready-made business.
This type of entrepreneurship is also attractive in that when opening, it expects minimal risk due to the popularity or recognition of a particular trade mark or brand.
Despite the large number of advantages, there are still some disadvantages and features of organization and management. Only after familiarizing yourself with all the intricacies of franchising, you can make a decision for yourself - Is it worth using such services or is it worth starting your own business from scratch?.
Definition
The concept dates back to 1858, when the famous inventor of the popular sewing machine Singer sold licenses for the production of his goods, while simultaneously providing raw materials similar to his factory, revealing the features of the technology and training staff.
The enterprises included in its association had the right to sell their products under the Zinger trademark.
Subsequently, after several decades, the owners of large car factories, General Motors and Henry Ford, turned to the franchising business system.
People who are far from economic concepts and definitions often confuse the concept of franchising and franchising, considering these two terms interchangeable and denoting the same process.
Those who decide to try to implement a business in a franchise should clearly know basic definitions regarding such a process:
- franchise- this concept refers directly to the acquisition of the right to provide services and sell goods under a specific brand;
- franchise package– it includes actions strictly stipulated in the contract and services provided by the company that owns the trademark;
- franchising– the process of organizing, opening, maintaining and controlling within the framework of an agreement with a franchisor.
In simple words, a franchise is the purchase of a ready-made business model and its implementation under the brand name of a well-known trademark and may relate to such concepts and items:
- cooking recipes- drinks, dishes, food products that can be sold in a fast food chain, restaurants, cafes or produced by food companies.
- Behavior patterns– customer service standards, manner of negotiating and closing deals.
- Form style- interior and exterior of the premises, staff clothing, various attributes relevant to the case.
- Trademark– sale of services and goods, their production under a specific logo. There may be a transfer of rights to use patents for useful inventions or models (such as production technology, technical specifications for the manufacture of goods).
There are several types of definitions of species and categories, differing in the principle of distribution.
Depending on the services or benefits provided, as some call them, the following types are distinguished.
Business Franchise- is by far the most widely used model and is a type of relationship when a franchisor offers an already established business for purchase to independent entrepreneurs in conjunction with its name, trademark or logo.
The most striking example is the chain of fast food restaurants. The entrepreneur receives assistance from the franchisor in choosing, planning and equipping the interior and exterior of the cafe (or restaurant), recruiting and training staff, developing the menu, cooking technology, and customer service models. Payment for such services is made in the amount specified in the contract.
This type of franchise, due to the provision of all components to a businessman, when he does not need to do anything on his own, is called a “turnkey business”.
When commodity franchise a franchisee (a businessman who buys a franchise) has the right to sell goods or products that are produced by the franchisor. An example is the acquisition of the right to sell cars of a certain brand or clothes of a particular company.
In this type of franchise, no royalties are often expected, and the entrepreneur under the contract assumes the obligation to buy for subsequent sale a certain amount of goods or a certain range of them. In turn, the franchisor ensures the implementation of advertising campaigns on a national scale and the provision of its advertising sign for use.
Production franchise- when the franchisor grants the franchisee the right to carry out the process of production of a certain product and its subsequent sale using its brand. This type is most common in the production of various food and beverage products.
It should be understood that any contract concluded will not necessarily fall under the current classification - each individual case may contain completely different conditions.
According to another existing classification, there are such franchise types:
It should be noted that in relation to the types of master franchise and multi-franchise, if the franchisee does not meet the opening dates specified in the contract, the number of organized places, certain rates of development or expansion, this may be fraught with penalties, termination of the contract and the transfer of all exclusive rights already another entrepreneur.
Pros and cons of opening
Benefits opening this type of business are the following points:
- The ability to quickly open your own business, even with minimal knowledge (or even their absence in any business area). To some extent, after opening or buying a business, the entrepreneur retains his independence in legal and economic terms, while at the same time receiving help and information from the franchisor.
- Purchase of an initially proven system (business unit). Such a model has already been worked out, tested and proven to be profitable and cost-effective.
- By acquiring a franchise business, an entrepreneur gets a business that already has a certain reputation due to its existence under the purchased trademark or logo.
- The absence of costs for the implementation of certain promotional activities and marketing, or their minimum value. Due to the fact that franchising involves doing business as part of an already well-known network, all possible costs can be reduced only to advertising the direct opening of a point (institution, production) in a certain territory. Alternatively, it may be necessary to advertise within a limited area of the location of an open business unit.
- The franchisee essentially acquires the opportunity to study in the field of the business being opened, without wasting time on this issue, graduating from any educational institution or course. Many franchisors, when selling the right to use their trademark or work under their own name, use special training programs aimed at obtaining information in the field of management, control, accounting and business development. This fact is also important for the franchisor himself - since it is in his interests to successfully develop each unit of his network.
- Guarantee of a constant supply of resources to ensure the operation of the business. Most franchisors strictly control this moment, and also impose special requirements on its quality indicators.
- Getting a job opportunity with virtually minimal risk. By acquiring a business under a franchise agreement, a businessman practically enlists support from the franchisor, which in the process of work helps to avoid the most common mistakes of entrepreneurship.
- By obtaining the right to conduct business in the field of franchising in a certain territory, a businessman is thus freed from the possibility of the existence of competitors.
- Opportunity to choose a field of activity on certain terms of payment and to get acquainted with the almost exact economic results that are expected from the work.
disadvantages franchising may include the following:
- It is not always possible to act independently when doing business - some contracts provide for clear steps and actions that can be carried out.
- A large amount that must be paid for the purchase (very rarely such a business will be sold at a low price).
- In the event that the franchisor, during any actions that worsen his reputation, will experience an outflow of customers, buyers, then such a danger may well be present in the person who bought the franchise.
- In the event that payment for the opportunity to use a trademark is permanent, then this becomes a significant expense item that reduces profits.
- When changing legislation, discovering or introducing any new technologies, a drop in profits is possible, which can even provoke bankruptcy.
- Franchisees under the terms of the contract often have to work with certain suppliers of raw materials and auxiliary materials, which can lead to the purchase of components at slightly inflated prices.
- Sometimes separate contracts imply a complete lack of support from the franchisor to the businessman who bought it. This option is inherently risky.
Franchise Examples
Consider three examples of the most famous brands under which you can do business on the basis of a franchise agreement.
McDonald's company- the most famous American food chain. Initially, the company decided to use the scheme of selling its business by franchising in order to bypass existing competitors.
The franchise of such a company requires a large amount of capital investments - firstly, its purchase will cost about 45 thousand dollars, and secondly, initially it is necessary to invest in the organization an amount approximately equal to 950 thousand dollars.
Chain of supermarkets of the federal level "Perekryostok". When opening such a franchise business, it is necessary to locate the building itself in a densely populated area, have nearby parking, access roads for the delivery of goods and maintenance of the building itself. In addition, there are special requirements for the exterior and interior of the premises, decoration, as well as lighting inside the building and outside.
Restaurant "subway» - has a relatively small initial contribution - 7.5 thousand dollars. The franchisor himself provides the partner with a system of various bonuses and benefits, while providing support in resolving issues of a different nature.
What are royalties and lump sums
Franchise fees can be paid two ways:
- With a down payment called lump sum. The lump-sum fee is paid only once upon purchase. Usually the entire amount is paid at once, although the contract may provide for payment in installments. Each company has its own system for calculating such a contribution, which is either fixed or varies depending on the conditions for opening and organizing a business.
- Royalty- a kind of monthly (less common options are weekly, quarterly, annual) fee for the use of the trademark. On average, the royalty rate is about 5-15% of sales and can be determined in the most appropriate way for a particular business area.
Thus, a franchise is quite an attractive type of business, although it carries some of the risk. If you want to start a business in such an industry, you need to weigh all the advantages and disadvantages, carefully read the franchisor's agreement, and only if all its conditions are acceptable, start cooperation.
What is a franchise and is it worth buying - details on the video.
Hello dear friends! Alexander Berezhnov is in touch.
Today we will talk about such a thing as a franchise. You will learn what a franchise is, what types of franchises are, and what are the main pros and cons of starting a franchise business.
Recently, the direction of franchising is gaining immense popularity, and in my opinion, it is completely justified.
Starting your own business through the purchase of a ready-made franchise gives aspiring entrepreneurs ample opportunities. But this method also carries some dangers. All this will be discussed in today's article.
Content
- What is a franchise - we give a definition
- Main types and types of franchises
- Pros and cons of starting a franchise business
- Real examples of franchises - TOP 5 popular options for future franchisees
- FAQ - Frequently Asked Franchise Questions
- Conclusion
1. What is a franchise - we give a definition
The classic wording is as follows.
Franchise is a set of benefits that allows legal entities and individuals to use the brand, author's developments, and the franchisor's business model.
There is another definition of a franchise, I formulated it myself. It is more applicable to building a business in general.
A franchise is a paid right to open a business under the auspices of a well-known trademark (brand), using its rules, technologies, and way of doing business.
This term can be described in different ways. In my definition, I conveyed the term "franchise" in simple terms. Let's see how this model works in practice.
Real life example
Aspiring entrepreneur Vasily Petrov decided to leave his job and start his own business.
He is a determined person and did not delay his dismissal. Prior to that, he worked as an employee in a well-known bank, he was familiar with the procedure for issuing loans.
In addition, Vasya has built up a good client base over the years.
Having sold his car for 700,000 rubles, Vasily bought a franchise of a point for issuing microloans (short-term loans).
The experience of working in a bank helped him quickly get the first profit, and after 3 months our entrepreneur began to earn 2 times more than working in a bank.
Thus, Vasya acquired the status of a franchisee and now plans to develop a network of microloan organizations in his city.
You can also be in Vasily's place if you decide to open a franchise business.
At the same time, the risks for you will be significantly lower, although business flexibility will be minimal. After all, you will have to fulfill all the requirements of the brand owner 100%, otherwise he has the right to terminate partnerships with you.
What can be franchised to you? - let's figure it out.
Franchises can be:
- trademarks;
- technologies;
- various types of intellectual property (including computer software);
- benefits and rights that the transferring party provides to the receiving party.
The company providing the services is called the "franchisor", the recipient of the right is called the "franchisee". The very system of promotion of services is called "franchising".
The rights to the brand and technology are not free, but have a predetermined cost, it is assumed that both parties to the transaction benefit from such interaction.
A franchise is the most affordable and fastest way to promote your own business. According to expert estimates, this method allows you to save up to 5 years of development and at the same time receive additional advertising support in the form of using a well-known TM (trademark).
harsh reality
Statistics show that more than half of start-up companies cannot withstand even 2 years of market competition. Small companies are especially affected by this statistic.
Using an existing brand significantly reduces the risk and allows you to start your own business with minimal investment. Franchising for small businesses is always a relevant and promising direction.
2. Main types and types of franchises
A franchise in business is a ready-made working scheme that an entrepreneur purchases from a franchisor (usually the owner of a promoted brand).
For start-up entrepreneurs without a large initial capital, this is the most profitable and affordable option for organizing their own commercial project.
This form of business activity is used in a variety of industries. There are about 70 lines of business in which you can use franchising in different types and types.
The most profitable and popular franchises relate to the following areas of activity:
- networks of retail supermarkets and retail outlets (business retail);
- catering (opening cafes, restaurants and other establishments under well-known trademarks);
- food production: opening a bakery, shops for the production of ice cream, chips, crackers, beer, etc.;
- beauty and health: opening of fitness rooms, spas, points of sale of sports nutrition;
- opening microfinance companies and franchise pawnshops;
- organization of construction business;
- opening of regional branches and departments of promoted online stores.
This is only an approximate list of promising areas. Any niche with a competent approach can bring solid profits at minimal cost.
Even the technology of organizing one's own profitable site, such as HeatherBober.ru, can be formalized and franchised.
If you do not have money, you can buy a franchise on credit and pay off the franchisor gradually with a share of the profits.
In addition, you will have to officially register your activities. In one of the previous articles, I already wrote how to open an IP.
How to get (purchase) a franchise
There are two main ways to pay for franchising services (granting a franchise): a lump-sum fee and royalties.
In the first case, the franchisee pays a one-time payment upon signing an agreement that gives the entrepreneur the right to use the brand, methods and technologies of the franchisor.
In the second option, payment is a percentage of revenue (usually 5-10% of turnover).
Now I will give a definition to these important terms in franchising.
A lump-sum fee is a one-time (one-time) payment for the right to work under a well-known trademark for one open outlet (business unit).
Such a payment is beneficial for small franchisors who will not control the financial performance of their franchisees.
Royalty is a periodic fee for the franchisor's services for the use of a franchise. This amount is usually paid once a month. It can be defined as a part of the profit, or as a percentage of the proceeds (money turnover per month).
Royalties are usually paid by large franchisees to their franchisors, for example, if you decide to open a McDonald's restaurant in your city, then the initial investment here will be about a million dollars.
In this case, it will be convenient for McDonald's to control your turnover and take the percentage due from it.
Sometimes types of payment are combined, that is, there is an initial payment in the form of a lump-sum payment and royalties in the form of periodic deductions.
Specialists distinguish the following types of franchises:
- Standard (classic) - the scheme involves a lump-sum fee, regular deductions and constant control of the business by the franchisor.
- Free - the most popular scheme in the Russian Federation, which provides the entrepreneur with greater freedom of action and minimal royalties.
- Import substitution is a way of producing products similar to well-known brands.
- Silver (turnkey business) - the owner of the TM himself creates a branch of his company and gives it to the franchisee for a percentage of the income.
- Business for rent - business management on contractual terms for a certain period. Income is distributed between the manager and the owner according to preconditions.
- Gold (master franchise) - the purchase of monopoly rights to business in a particular region. The cost of such a franchise is very decent, but the franchisee himself decides according to which scheme he will develop his activities.
- Corporate - the owner almost completely controls the business and conducts it on his own terms.
The type of franchise that an entrepreneur plans to use depends on the amount of start-up capital, business experience and ambitions of the franchisee.
3. Pros and Cons of Starting a Franchise Business
Let's take a look at the pros and cons of franchising. I took several criteria by which you can make an analysis of the advantages and disadvantages of this scheme for starting a business.
All of them have already been mentioned above in one way or another, but here each is described in detail. Below I also gave a table, it will also help you see the strengths and weaknesses of the franchise.
Benefits of starting a franchise business (+)
- Brand recognition. The franchise involves the use of an image that is already known on the market and has gained confidence.
- High spin speed. Good revenue can be received literally the next day after opening a business (for example: on the opening day of a McDonalds cafe in Moscow, a queue of 3,000 people lined up).
- Training and support. There is no need to spend years acquiring the skills and experience of running a business: the franchisor himself is interested in getting you into a rut as soon as possible. Often, for new partners, owners create special training programs and training courses to learn how to effectively run a business. At any time, the franchisor is ready to provide its subsidiaries with advice and legal support.
- Minimum advertising costs. A good franchisor will always provide wards with working recommendations on organizing and conducting advertising campaigns, promotions and events.
- Reduced business risk. A novice merchant is provided with all the conditions for the business to "grow up" from the first days of its launch. The probability of failure, of course, exists, but in this version it is minimized.
Sometimes the owner company provides the franchisee with the necessary equipment for the competent organization of the workflow, or even provides services for the design of premises for commercial or industrial activities.
But there are downsides to this scheme as well.
Disadvantages of Franchising (-)
- There is no room for maneuver. A franchise entrepreneur is always limited in his creative maneuvers by the terms of the contract. All his activities are regulated to the smallest detail.
- Forced purchase of equipment and consumables. In most cases, the franchisee is forced to purchase goods and consumables only from his business partner, having no choice.
- pressure from the franchisor. Sometimes the conditions for start-up businessmen are very tough: contracts are drawn up in such a way that the brand owner gets the maximum profit, and the franchisee works hard 24/7.
- The high cost of some franchises. The financial issue is especially relevant when buying an exclusive right to use a brand in a certain region or city.
- Suppression of creativity and creativity in doing business. Some entrepreneurs find that starting a non-franchise business opens up more opportunities for creativity in marketing, advertising, and manufacturing.
I don't know about you, but I think the advantages outweigh the disadvantages here. Although everyone chooses what is more important for him - the stability of the business or its flexibility.
In the table below, I graphically compare the opening of a traditional business and a franchise business.
| № | Comparison criteria | Franchise | Traditional business |
| 1 | Risk | Low (+) | High (-) |
| 2 | Project promotion timeline | Several weeks (+) | Months and years (-) |
| 3 | Availability of support | Yes (+) | No (-) |
| 4 | Initial investment | By agreement (±) | Large (-) |
| 5 | Advertising costs | Low (+) | High (-) |
| 6 | freedom of maneuver | Low (-) | High (+) |
The table shows that all the main differences are in the speed of launching a business, its flexibility and advertising costs.
4. Real examples of franchises - TOP-5 popular options for future franchisees
And now specific information on the most relevant areas of franchising at the moment.
The full catalog of franchises can be found on the relevant resources, but we will consider the TOP-5 of the most popular brands. Here, both expensive options and affordable ones will be considered.
Popular franchises
Surely you have already heard about some of them and what a franchise is, for example, McDonald's or Subway restaurants, is known to almost everyone who is interested in this topic.
1) McDonald's
Known, perhaps, to everyone, the American catering chain. McDonald's was forced to switch to a franchise scheme by its competitors: so that the business would not wither, the owners decided to spread it around the world.
I warn you right away that this type of activity will require a solid initial investment from you. Typically, a franchise from McDonalds is acquired by already established entrepreneurs or wealthy people who are looking for ways to make a profitable investment.
The franchise itself (agreement) is relatively inexpensive - $45,000, but to enter the business you need an initial capital of $950,000.
2) Crossroads
Perekrestok is a chain of federal supermarkets owned by X5 Retail Group. The target audience of consumers is people who prefer a higher level of service, appreciate the quality of products and the freshness of the food they consume.
To open a store, certain conditions must be met. A supermarket should be located in a densely populated urban area, have access roads, parking, and convenient walking approaches. There are requirements for the area of the store, internal communications, design, outdoor and indoor lighting.
3) Subway
Subway restaurant franchise is the most profitable option for small and medium businesses. The franchisor offers partners preferential and favorable conditions, regularly reducing lump-sum fees and providing legal and advertising support.
Currently, there are about 700 Subway restaurants operating on the territory of the Russian Federation, opened under a franchise agreement. The initial payment is $7,500.
4) Coffee to go
Another popular and profitable option is to open a coffee shop in the “coffee to go” format. Actual and popular direction, assuming minimal initial costs.
There are dozens of well-known and relatively well-known companies in megacities that offer to participate in the case for an initial contribution of 100-400 thousand rubles.
5) Delicious help
Tasty Help is a company specializing in the development and manufacture of exclusive food products. The company includes a production base and a trading house engaged in wholesale sales. The company is actively developing its retail network, involving partners in the free franchising system.
Initial investment - 350,000 rubles. The launch of the project is as fast as possible - it will take only 10-14 days. The owner promises a full return on investment in 2-3 months.
5. FAQ - frequently asked questions about the franchise
People who have never dealt with a franchise job naturally have a lot of questions on the topic regarding the risks, pitfalls and other nuances. I will try to answer the most relevant and frequently asked questions.
Question 1. Is it worth opening a franchise if there is no experience?
If you have firmly decided to do business, but have zero experience in business, then franchising is the most profitable and convenient option. As I wrote above, the risk of "failure" when working according to such a scheme is minimal, since there is primary support in the form of a stable and working project of the main project.
Not all franchises are equally good, and not every partnership guarantees a decent profit, so it is important to choose the right franchisor.
What should a newcomer do before accepting the terms of the contract? Of course, to study all available information about the company with which he intends to cooperate, on the Internet and in the media.
You will have to spend time and effort, but the probability of a profitable investment of effort and money increases many times over.
Question 2. Is there a franchise without investments?
Yes, there is, but it is not always worth using such offers without first studying all the nuances. The absence of a lump-sum contribution does not mean the absence of cash spending. It is possible that you will be required to pay a substantial percentage of royalties - deductions from the income from the project.
This seems fair, because the franchisor himself invests in the branch of the company and promotes it. The main thing is that the percentage of royalties is within reasonable limits. You may find it unfair to have to give the brand owner half of the profits.
The normal figure is 5-10% of the turnover. And even this, provided that your margin is at least 25-30% in this business.
Some large corporations allow their employees to become co-owners or even self-employed businessmen.
To do this, the owners of companies launch special programs that involve the development of sales representatives, heads of regional points of sale to independent business owners.
Question 3. How to choose the right franchise?
Choosing the right franchise is not an easy task, requiring preparation and a purely pragmatic approach. When choosing a franchisor, you should focus on the following criteria:
- The period of existence of the company in the market. The more time the company works, the more stable its position and therefore you have more chances to become its successful partner.
- How fast is the pace of business development? If a company had 10 stores a year ago, and now it has 50 or 100, it means that the activity is more than successful.
- What are the down payment and royalties. Excessive greed of the franchisor is certainly a warning sign. Here you need to find a balance between the reliability of the franchise and your costs of acquiring and maintaining it.
- Partner support. The availability of competent legal and marketing support is an important criterion that a franchisor should have.
In other words, when choosing a business partner, you need to comprehensively study the issue of his loyalty to the franchisee.
Even if the name of the company is well-known, and the contract itself seems profitable and reliable to you, it is definitely worth conducting a preliminary check.
What I would do in this situation is to find a way to communicate with other franchisees who already have experience with this franchisor.
Question 4. How much does a franchise cost and what does its price depend on?
The price of a franchise depends on many factors.
The most significant of them:
- brand awareness;
- the territory of the franchise;
- contract time;
- the franchisee has the necessary production or retail space (capacity).
The most expensive franchises in Russia reach $1.5-2 million (McDonald's).
More democratic companies require smaller investments - $4-20 thousand. It is clear that large investments imply a corresponding increased income, but you always need to calculate your own strengths and capabilities in advance.
Question 5. Franchising and franchising - what's the difference?
There is no fundamental difference between these concepts.
Franchising is what you buy from the owner, and franchising is the process of the transaction itself (a way of partnership).
Franchising can also be called a general line of business involving the sale/purchase of brands and technologies.
6. Conclusion
Friends, in this article I told you what a franchise is in simple words. I would be glad if it helped you understand this concept.
For beginners, this article is useful in that here I have minimized abstruse terms, given practical examples and showed my personal attitude to various issues related to starting a business under a well-known brand.
So, let's sum up.
Now you have become more competent in matters of franchises and franchising. I hope this information will help you realize your own business projects and get a stable income.
Every adult sane person is not alien to the desire to have their own business, but at the same time, the very idea that it is necessary to analyze the consumer market in order to identify the most popular services, products, develop an idea, promote it to the masses, select a real professional team, is disheartening. . But this is not the whole range of actions for building your own profitable business. A franchise is what can save you as a future businessman from a lot of routine work to promote a business idea, in fact, this is a ready-made enterprise of one direction or another, which is already well known to consumers. However, despite the obvious advantages, franchising has many pitfalls, but first things first!
What is a franchise in simple words: basic concepts
In order to understand the intricacies and the principle of operation, to give a banal definition is not enough, you need to know all the components of the system under consideration. Let's start with a general concept, a franchise is an agreement between an individual and a legal entity, where the second is a large corporation that has its own brand or brand. The subject of the agreement is the acquisition by an individual of the right to use such a mark or brand in order to implement a personal business and receive profit from this.
Simply put, an individual acquires from a well-known company the right to conduct a franchise business on behalf of this company.
Naturally, the concept of a franchise is very broad and for its clear understanding it is necessary to know and be able to operate with its components:
- A franchisee is an individual who buys the right from a well-known company to use its benefits;
- A franchisor is a legal entity, a company that sells the rights to use its brand to franchisees;
- Franchising is the whole structure of the complex of services provided by the franchisor;
- A lump-sum payment is a one-time payment in the amount of the monetary equivalent established by the franchisor from the franchisee in exchange for the first granting the second the right to use the franchising facilities in order to run their own business;
- Royalty is a payment on a regular basis by an individual to the franchisor for the right to use its objects of the franchising system. As a rule, royalties are a predetermined percentage of the franchisee's income established by a drawn up agreement.
Under those rights that, in fact, an individual buys from a well-known organization (or objects of a franchise), are understood:
- Trademark or brand;
- Production technology;
- Any kind of intellectual property;
- The whole system of rights and benefits, which will subsequently be transferred to an individual on a paid basis.
Let's try to visually consider all the above concepts on a specific example. So, two very knowledgeable socialites in the fashion industry - Angela and Snezhana, in order to have at least some financial independence from their husbands, decided to open a chain of fashion stores. Having received start-up capital of 1,500,000 from their husbands, they acquired a franchise of a well-known and already promoted network of women's clothing stores. Thus, the money (1,500,000) became a lump-sum payment, and Angela and Snezhana themselves became franchisees. During the conclusion of the contract, the amount of the monthly contribution from all income from the operation of the chain of stores - royalties, in the amount of 15%, was also established. Now the girls run their own franchise business, use all the benefits of a well-known brand, but at the same time work for themselves, and not "for someone else's uncle."
Franchising a company: advantages and disadvantages of doing business
Of course, the above example is very simple, from which one can erroneously conclude that opening a franchise business is just manna from heaven, subject to the availability of start-up capital. This is far from true. Any organization of entrepreneurial activity has its advantages and disadvantages, and franchising is not without such features. To be more clear on this issue, let's present the positive and negative aspects of doing business, in the form of a table:
As we can see, there are more pluses of a franchise business than minuses, but the most important thing in this matter is to understand that the franchisor still occupies the leading position, it is this side of the transaction that dictates its own rules. In many ways, the franchisee will have to go along with the franchisor, while stepping on the throat of his own song.
Since opening a franchise business is a voluntary business, but at the same time risky, you need to think through all the nuances and methods of how to protect yourself even before entering into it.
Types of franchise: choose the most suitable
Obviously, in the absence of start-up capital, opening a franchise business is the most acceptable and profitable option for any aspiring entrepreneur. To date, there are more than seventy areas where you can use the franchising system, however, first of all, you need to study and choose the type of franchise:
- Classical. This is a standard scheme with a lump sum, royalties, while the classic system involves constant control of the new enterprise by the franchisor;
- Free. A distinctive feature of this type is the fact that the franchisee is not so limited in their actions, as well as the amount of royalties is much less;
- Import-substituting. This type implies that the franchisee will be engaged in the production of analog products / goods, like a well-known brand;
- Silver. A well-known company builds subsidiaries on its own, and then, for a certain percentage of the income received, gives the right to a willing entrepreneur to manage them. This type of franchise is better known as a "turnkey business";
- Leased. This variation assumes that the franchisee takes the position of a tenant, while all income from the operation of the enterprise or company is shared by the parent organization and the entrepreneur. In what shares the income will be divided, it is established by the contract;
- Gold. In order to acquire such a business option, you will have to fork out, since in this case the franchisee acquires monopoly rights to the brand, naturally within the specified region (this can be both a region and a city). Such a scheme completely unties the hands of the entrepreneur, and he independently, having every right to do so, develops a strategy for running his company;
- Corporate. This type has something in common with the classic one, since the franchisee conducts his business activities under the total control of the franchisor.
The type of franchise is directly dependent on the amount of money that the entrepreneur is ready to pay as a lump-sum contribution. Having decided on this issue, now you can proceed to the analysis of popular franchises, today it is:
- Network outlets;
- Network hyper- and supermarkets;
- Network points of public catering (cafes/coffee houses/pizzerias/restaurants and so on);
- Large-scale food production (bakery, snack, beer, and others);
- Fitness industry;
- Beauty salons and spas;
- Stores selling healthy food;
- Microfinance companies (MFIs);
- Building bussiness;
- Network points for the sale of popular Internet products.
Of course, this is not the whole list of those areas in which you can profitably acquire a ready-made business, but in the conditions of modern realities, it is among them that you can choose the most popular franchise.
Choose Your Franchise Wisely: Criteria to Consider
Since there are many offers to sell a franchise today, scammers have already learned how to make money from this. They sell the so-called "dummy" under the guise of a profitable business. So, in order to choose a franchise and get a well-built worthwhile business, we have selected for you the criteria that you should rely on:
- First of all, pay attention to when the enterprise was founded, analyze if the franchisor offers you a seasonal offer. If a company has successfully survived more than one business cycle (the more, the better), this indicates that it has already taken its stable place in the consumer market;
- Now evaluate how long this company has been operating within the framework of franchising. The more experience a company has in transferring a business model, the more significant and productive your mutual cooperation will be;
- Ask the franchisor to provide you with documentary evidence that this company does not appear in legal and tax disputes;
- Carefully check all aspects of the franchising company, require documentary evidence for each of them. Remember that franchisors can be very eloquent, thereby hiding the real state of affairs;
- Never hesitate to look stupid, ask everything that interests you or seems incomprehensible. One of your main tasks is to get in touch with the franchisor and build a more or less trusting relationship with him. Of course, it is obvious that each of you primarily pursues your own goals, however, before signing a direct contract, you should find out as many nuances as possible about the franchise being acquired;
- Be very careful when studying numbers and interest rates, many contracts contain hidden fees that entail unforeseen expenses on the part of the franchisee;
- For clarity, visit an enterprise already operating under the auspices of this franchise. So you can really evaluate the productivity of this business idea. This criterion is especially important if the proposal is related to the catering or service sector;
- Try to communicate with existing franchisees based on this business idea. Ask them how conscientiously the franchisor is in fulfilling his obligations, what are the real profit indicators, how he supports his partners, and whether this entrepreneur plans to terminate the franchise agreement. In addition, you can study information about this franchisor on the Internet, where you will also find a lot of reviews about his work;
- Try to find information about those enterprises that worked according to this business model and were closed for some reason. These reasons are the weaknesses of the franchise, it may be better to refuse to purchase it;
- The profitability of the business is the best illustration of the number of enterprises that have been reopened. Simply put, a franchisee who already manages an existing company, but at the same time plans to re-acquire its franchise, but already, for example, in another region, made sure of the productivity of the business from personal experience;
- Evaluate the ratings of the company.
When choosing a franchise, always rely on the expected profit indicators, because profit is your ultimate goal. The ideal option would be if you are familiar with the area in which you plan to acquire business rights.
How much does a franchise cost
Naturally, the price of a franchise depends on the brand, we have already mentioned this above, but that's not all. The final cost is made up of:
- The level of popularity and demand for the brand;
- How widely the franchise extends here refers to the territory;
- terms of the contract;
- Does the franchisee have the necessary production / retail space in the property.
Where to buy a franchise
There are three different ways to buy a franchise:
- From the direct franchisor. Oddly enough, this is the easiest option. Who better than the franchisor himself can give you a complete picture of his business idea, but whoever, no matter how he can hide some unseemly nuances. Be careful;
- At a consulting agency. This is the safest way to buy a franchise. Such agencies are franchising gurus, and a staff of experienced lawyers will help in drafting and signing the contract and carry out the deal at the highest level. The disadvantage is obvious - the services of consulting agencies are paid and are quite expensive, the goal, of course, justifies the means, again, it's up to you;
- You can buy a franchise through a virtual exchange. The Internet is replete with such resources; only the most relevant offers, as well as expert opinions and advice, are collected here. At the same time, you can study the documents, certificates and certificates of franchisors. The downside is that all this documentary evidence can be easily falsified. Still, a visual study of documents with a live signature is more reliable.
In conclusion, we can say that buying a franchise is a very responsible business that requires detailed study. If you join an already ready-made profitable business, you can secure a comfortable existence for yourself for a long time, or you can, on the contrary, lose your hard-earned start-up capital. The most interesting thing is that starting a franchise business is not a problem, the problem is choosing a profitable business model. The luck factor is also important in this matter, since you can invest in an already promoted company and burn out, or you can identify the niche that is least paid attention to in the modern market, invest there and raise fabulous money on it.
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We will talk about what a franchise is in simple terms, what are the pros and cons of doing business in this way, what you should pay attention to when choosing a franchise.
Basic concepts
Franchise- the right to work under the brand and use the technology of doing business of a well-known company.
Franchising- this is the very system of business relations between the franchisor and the franchisee.
Lump sum- a one-time fee at the conclusion of the franchise agreement.
Royalty- regular payments for the use of a franchise, usually a percentage of revenue or profit.
Pros and cons of a franchise business
How to choose a franchise?
The most popular franchises in our country are food, clothing, footwear, cosmetics, restaurant and hotel business.
When choosing a franchise, you need to answer a few key questions:
1. How long has the company been on the market?
The longer, the better.
2. How fast is the franchisor developing?
For example, if 5 years ago a company had 10 stores, and now it has 100, it means that its activities are successful.
3. What is the lump sum and royalties?
Larger investments mean higher returns. It is important not to overestimate your capabilities. Find a balance between your costs and expected profit.
4. Is there support for franchisees?
A good franchisor must provide competent marketing, legal support and train franchisees.
5. What are the franchisor's competitors in your area?
Read the terms of the franchise agreement carefully. For example, franchisors often require the entrepreneur to operate in a premise of a certain size. In addition, specify which territory will be assigned to you in order to avoid unnecessary competition. What to pay attention to when concluding a franchise agreement and how to avoid mistakes?
Great if you can communicate with other franchisees. Find out how it works in practice and what are the nuances of cooperation.
You learned what a franchise is, what advantages and disadvantages this method has, how to choose a franchisor company. We hope this will help you achieve business success.
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