Franchising is a system of mutually beneficial partnerships arising between the seller and the buyer of the franchise (French franchise - privilege, privilege, approx. The right to use the brand and business model). The franchisor (seller), in simple words, is a company with a recognizable brand, extensive experience in doing business, a positive reputation, and a broad client base. A franchisee (buyer), in turn, is a company or private entrepreneur who has bought the right to work under a foreign brand. The partnership is based on the provision of a license to use a trademark, management system, business technology with mutual obligations and benefits for its maintenance. It is important to note that a non-launched, non-existent business model cannot be developed using such a system.

The history of franchising in the world

The features of this business system were also evident in the Middle Ages, but in the format familiar to us, it began its history in the United States in the 1950s. Even at that time, Baskin Robbins, Zinger companies noticed the following trend: the larger the number of enterprises, the more difficult it is to manage them, maintain a high level of product quality and sales. To solve the problem, the following idea was put forward: to provide their brand to other entrepreneurs, so that they develop their business under the flagship of the company, while paying the corresponding payments for using the brand.

The history of franchising in Russia

In the 80-90s of the last century, well-known foreign networks entered the Russian market - PepsiCo, Kodak, Subway and others, which laid the foundation for franchising in the country. The relay was intercepted by national brands - for example, 1C, Sportmaster, Teremok. Today in Russia there are a large number of such partnerships in various fields. Such cooperation in the country is regulated by a commercial concession agreement (an agreement concluded in writing between the buyer of the right to use the brand and its owner).

How franchising works: obligations of the parties

Types of Franchising

Despite the fact that there are many different classifications, let us focus on the main types of franchising. Classic - the most common type, which includes royalties and lump-sum payments to the brand owner, his tight control over the activities of the running point. In a turnkey business, a company creates an enterprise on its own, then handing it over to a partner’s management on the basis of a percentage of revenue. Master franchise involves the development of a brand in a certain territory by an entrepreneur individually. He, in turn, can independently attract new partners to the development of a trademark in a given area. The system in the “second generation” is called sub-franchising.

Pros and Cons of Franchising

Is franchising profitable?

This type of business reduces the risk of an unsuccessful start-up at times. Let’s analyze it: if an entrepreneur starts his own business, he faces a lot of obstacles. He needs to choose the right project format, create a brand, develop a strategy, take care of the official design ... And these are just some of the issues that an entrepreneur must solve. It is not known how much time and money needs to be spent to achieve success in the market. Accordingly, the project may not meet expectations at all (and this is with all efforts!) And fall a victim of fierce competition. Franchising is designed to eliminate such errors. The company went through a thorny path, having understood all the intricacies of the market and enterprises in particular, having earned popularity among customers. She transfers all her best practices to her partner, helps with doing business. Therefore, yes, franchising is beneficial both for the investor (receives a successful business model with “built-in updates”) and for the brand owner (receives a lump-sum payment and royalties).

Hello dear readers of the blog site. The term franchise (from franchise, which means "privilege") refers to a more complex concept - franchising.

Movie 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 here it is the beginning of the formation of the franchise (Marvel universe, for example). The opening film, in fact, is becoming a popular brand that can continue to be mercilessly exploited. All who wish to do this will unfasten the royality to the copyright holder (initiator).

A second film about the same comes out, then a third, a fourth. They are called sequels, prequels, remakes. But, as a matter of fact, these are “products” released according to proven and patented technology. They’re less likely to fail at the box office, because they have behind them the success of the film-parent of the franchise.

Although, the ancestor can be not only a film, but also a book, as, for example, it became with the most popular media franchise in the world about Harry Potter. And a set of books, a book can be written on the film, again as a franchise. Its author will receive an advantage (due to the popularity of the film), but will pay a bribe to the copyright holder. Everyone is well (except the readers of this book 🙂).

Some terminology

This article is written in the simplest possible language, but for reasons of saving the forces and time of the author and the reader, it uses some concepts from the classical economy.

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. In fact, 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 word.
3.   - in fact, the very object of franchising. For example, McDonald`s restaurant in Moscow. It was built for the money of a Russian investor (franchisee), but at the same time conducts activities, observing a number of strict conditions and standards.
4. Royalty, lump-sum and advertising fees are the names of the investments that the franchisee makes.
   1.   business entry fee.
   2.   monthly payment in favor of the franchisor (copyright holder).
   3. Advertising fee - an annual payment in favor of brand development.
   4. In addition, there are classic investments.

Where did franchising come from?

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

The method is far ahead of its time, so the next major franchises appeared only after a hundred years. One of the first franchising firms began to practice McDonald`s and Ford.

An interesting fact: it is noteworthy in the franchise that it is the brainchild of the crisis of the 1930s (the Great Depression in the states). To avoid bankruptcy, campaigns began selling the right to conduct business on behalf of their brand. So they survived.

Franchise Business Essence

Consider the principle of operation of this method of doing business on the example of opening a franchise of a brand  "Tasty coffee". The trademark, of course, is fictitious (and please consider all coincidences a coincidence), however, it is suitable for illustrative calculations. Prices are taken from a similar, existing coffee shop chain (what kind is this?).

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

Franchisee requirements (for a person renting a business model)

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

1. An empty room with an area of \u200b\u200b8 to 15 square meters in a shopping center or on the ground floor of a building located on a busy street.
2. Material base (monetary foundation) - even before the acquisition of a franchise, the investor must provide bank statements (what if he scored a goal like a falcon and only inflated his cheeks).

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

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

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

Consider its actions, depending on the investments made by the participants of this scheme (junior partners, i.e. franchisees):

1. Flat fee  (for entering the business under this scheme) - 100,000 rubles. Where does he go? For a hundred thousand lump-sum contribution, the franchisee gets the right to open a coffee shop under the brand “Tasty Coffee”, as well as instructors for staff, his personal instructor and even a manager who will lead the entire preparation and opening process (as well as ) Service, however.
2. Development investment  - 250,000 rubles. What are they spent on? Having received another two hundred and fifty thousand, the franchisor (copyright holder) begins work on the premises, namely: its overhaul, the purchase of branded equipment and bringing the design to the right standard.
3. Advertising fee  - 50,000 rubles. How are these funds spent? Having collected 50 thousand rubles from each franchise owner (acquirer), its owner (not himself, of course, but specially trained people) conducts an advertising campaign for this money. At the same time, not every outlet is promoted separately, but the entire brand as a whole.

It is important to understand that in this example, investments are planned separately for ease of perception. In practice, lump-sum contributions and investments in development are usually made out in one package. Most often, the franchisor insists on the immediate start of work immediately after the transfer of the right to the brand.

An interesting fact: what is interesting about the franchise is that it is a very diverse business. There are schemes based on franchising for the sale of flowers, the production of pipes and the organization of hotels. In fact, this is a model that can be pulled over any business framework (see the movie industry example at the beginning of the article).

How franchise work differs from ordinary business

Let's get back to our cafe from the nonexistent Delicious Coffee network. After completion of repair work and staff training, the institution begins to work.

Overall it looks like a regular private businessbut with some reservations. Here we’ll just talk about them in more detail and for clarity, we’ll compare all this with the conduct of ordinary business (for example, private entrepreneurs).

So you get it, right? With the help of a franchise, you get “under the side of the big uncle.” It’s not so much blowing to you, it will support you if anything, and the sustainability of your business is several times higher (15% of failures when working on the basis of franchising and 85% when working according to the usual scheme for the first 5 years - statistics are tough).

It is clear that you have to pay for such support. Love the risk - choose the usual scheme. Prefer a tit in your hands - a good solution would be a franchise (although not ideal).

Now about sad (or joyful?). The franchise can be closed both planned and unscheduled.

1. Planned  franchise closure. Like any type of lease, the franchise opens for a certain period. If after the expiration of the contract the parties have no claims against each other, and the franchisee does not want to renew the contract, the scheme simply stops working.
2. Unscheduled  franchise closing. A franchise can be closed ahead of schedule in case of bankruptcy of one of the parties or at the initiative of a franchisee. In this case, the franchisee is obliged to report the closure six months before the termination of activity. This figure is universal for all contracts.

Speaking of risks, one cannot 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’s advisable to consider risks and benefits of only two parties.

For the franchisor (copyright holder)

For the franchisee (tenant)

An interesting fact: the largest franchise company in the world - a chain of fast food restaurants Subway. It has over 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.
   He is the most common. The franchisee sells goods under the brand name of the franchisor. For example, the Nike store in Kiev or Adidas in Warsaw.
2. Industrial.
   The very first to appear on the market (remember Singer). Franchisees, using franchisor technology, produce goods. For example, Apple and Samsung factories in China, Audi factory in Russia.
3. Service.
   It resembles a commodity, only a franchisee does not sell goods, but services. For example, a European network of dry cleaners or a network of private music schools.
4. Back.
   The reverse may be any of the above types of franchising. Its essence is that the franchisor pays franchisees royalties (in this case 70-80 percent of the turnover).

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

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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

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

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

Recently, the direction of franchising is gaining immense popularity, and in my opinion, completely justified.

Starting your business with the purchase of a ready-made franchise gives the novice entrepreneur ample opportunities. But this method is fraught with some dangers.

All this will be discussed in today's article.

1. What is a franchise - give a definition

The classic wording is as follows.

Franchise  - This is a set of benefits that allows businesses and individuals to use the brand, copyright, and the franchisor’s business model.

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

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

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

Franchising, to put it simply, is an opportunity to open your own store, but with a sign of a well-known company. At the same time, they will help you find a room, select staff, make repairs, and even ship the goods, the main thing is to remember to pay bills on time.

Now let's try to understand this issue in more detail.

Why do I need a franchise?

If you are thinking about starting your own business, most likely you have already begun to ask such questions: in which place is it best to open it? What is the best rental price for my business? Who to buy the goods from? What mark up on it? How much do I need to spend on launch and how much can i earn?

And this is only a fraction of the questions that the aspiring entrepreneur has yet to answer.

A smart person learns from the mistakes of others -

it was for such people that franchising was invented.

Before offering your franchise on the market, the franchisor, that is, the franchise owner, must first “bring to mind” his business system, work out all the business processes and prove the effectiveness of his business. The franchisor must have an existing “reference” enterprise, which it uses when “cloning” according to the franchising system. Therefore, buying a franchise, you get an already proven and tested business model that has proven its effectiveness.

Having bought a franchise, you will receive answers to all the questions that interest you, as well as to those that you have not even thought about. Thus, you can start your own business, while protecting yourself from most of the risks of a novice entrepreneur.

How much is a franchise?

To answer the question about the cost of the franchise, you first need to figure out what the total investment in opening a new business is made up of. Usually these are the following items:

For this help you will need to pay the franchisor .   This is a one-time payment that is paid when buying a franchise. Usually it is from 5 to 10% of the total investment in the opening. Many franchises do not have a flat fee! In fact, he certainly is, since there are no altruists among franchisors. It is simply “hidden”, for example, in the form of a compulsory purchase of goods or equipment from the franchisor.

You will have to pay for this support. These are regular, usually monthly, payments. Royalty can be fixed (for example, 15 thousand rubles a month), and it depends on the volume of your income or profit - as a% of turnover. There are franchises that work without royalties at all - but in this case, as a rule, you will need to conduct regular purchases of goods from them.

Do not think that a franchise is a form of employment. Your business will remain yours, and you will manage it completely independently. The franchisor will be able to give only advice and recommendations to protect you from erroneous decisions.

By franchise, you can only open a store?

It is a common misconception that franchising is focused only on retail. Once it was true, but now only third  all franchised offers are shops. And among other categories you can find many interesting offers.

First of all, these are, of course, catering establishments - cafes and restaurants, coffee houses and sushi bars, burgers and sandwiches. The most famous food service franchise is McDonald's. Unfortunately, it is almost impossible for an ordinary person to buy it in Russia - you need to have the broadest connections and colossal investment opportunities. But you can consider competitors' proposals - for example, Subway offers a much more affordable option to start a fast food business.

But franchising does not end at catering either. Are you interested in online business or information technology? We are ready to offer you a wide selection of online store franchises, as well as franchises related to the development and maintenance of software.

Do you want to provide services to the population, work in the field of health, beauty and sports? Please - in our catalog of franchises you will find many offers from fitness clubs, beauty salons, hairdressers.

Love cars  since childhood and always dreamed of turning your passion into a source of stable income? View offers from companies related to auto business  - styling services, taxis, car services, car parts trade and even car rental - you can earn money on all this!

A franchise is easy!

Thus, you can open a franchise for absolutely any type of business. You will need to pay a lump-sum fee, and regularly pay royalties, and for this you will receive assistance at all stages of the opening and ongoing work of your enterprise. At the same time, all the income that you will receive from the work of your company will remain yours, and the business will be completely under your sole control.

A franchise is an easy way to start your own business with minimal risk.

If you are interested in any franchise - send an application, talk with a company representative, ask for contacts of existing franchisees, meet and chat with them - only in this way you can personally verify the reliability of the company and make the right choice as a result.

Perhaps everyone wants to start their own business. But, unfortunately, not all small entrepreneurs manage to win the competition and take their place in the sun. That is why more and more businessmen prefer such a type of activity as franchising.

What is franchising? It means that you will work under the auspices of an already promoted large company. But let's talk about everything in more detail. So...

Franchising - what is it?

Due to the saturation of the market and a high level of competition, not every sane entrepreneur will decide to promote a newly created brand. That is why franchising is becoming more widespread. What is rent, perhaps, everyone knows. We are used to the fact that this concept refers to property. in this case, we are talking about renting a trademark or brand.

Thus, it can be said that franchising is a form of entrepreneurial activity during which large enterprises (franchisors) transfer to businessmen (franchisees) the right to use a trademark on certain conditions and for an agreed amount of remuneration.

All details of cooperation are reflected in the franchise agreement. The main of its items is the size and procedure for paying royalties. Also, this document may display conditions and some restrictions regarding the use of the brand and trademark. Also stipulated is the amount of the initial contribution, which is a prerequisite for starting a partnership.

How franchising developed

The development of franchising has a long and rather interesting history. So, the founder of this type of activity is considered to be Singer, who, starting in 1851, began to conclude contracts with certain companies, transferring them the right to sell and service their sewing machines.

By 1920, the so-called commodity franchising began to develop in the United States. It consisted in the fact that large manufacturers established sales of their products through large retail chains. In return, sellers received some privileges in terms of price, as well as the opportunity to use a well-known brand to attract buyers. By the 30s, this phenomenon had spread to oil refineries, which led to the formation of large networks of gas stations.

Franchising in its modern form was born in 1945. Then the founder of the McDonalds brand bought several successful restaurants and combined them under one brand. Soon, a popular network spread around the world.

When franchising appeared in Russia

Franchising in Russia originated in the 90s, when large entrepreneurs began to cooperate with well-known foreign companies. A pioneer in this matter was the Planet of Hospitality. Well-known companies for the manufacture of sports uniforms and equipment are widely used. Also from abroad came the first tour operators. In 1997, it was decided to establish the Russian Franchising Association.

The most famous representatives of this area of \u200b\u200bactivity are the McDonald's, Subway and others fast-food restaurant chains. Also, cooperation in terms of the manufacture and sale of clothes and shoes was widespread. Unfortunately, crisis moments and fluctuations in the economy contribute to the departure of foreign representatives from the Russian market.

Contract

The franchise agreement, in accordance with the law, is referred to as a commercial concession agreement. It implies that one party transfers to another a specific list of rights to use a trademark for commercial purposes. The document may be unlimited or have a specific end date.

The right to use a trademark may include unlimited use of the brand or set a certain framework. It is also worth noting that some obligations of the parties are prescribed in the contract. In particular, the user is responsible for maintaining the reputation of the company, as well as the use of its attributes strictly for the intended purpose.

Parties to the contract may be legal entities or individual entrepreneurs who are registered in the manner prescribed by law.

Types of Franchising

Regarding this form of activity, there are several classification methods. In accordance with the most common, the following types of franchising are distinguished:

• By field of activity:
  • trade (involves the sale of goods of a particular brand with the possibility of using its marketing system);
  • service (the franchisee transfers full or partial rights to the provision of services in accordance with the patented method);
  • production (the franchisee gets to use the technology of manufacturing goods);
  • mixed.
• According to the know-how:
  • distribution (sale of goods or the provision of services under a certain brand);
  • business format (the methodology of doing business, as well as the marketing concept, is added to the previous paragraph).
• On the organization of the system:
  • direct (direct agreement between the franchisor and the franchisee);
  • development (the right to open points on the basis of a franchise agreement strictly within a certain territory);
  • master (implies an almost complete transfer of rights and obligations).

Forms

The following main forms of franchising are distinguished:

• direct - implies direct contact of the parties to the contract in determining key conditions;
• sequential - lies in the fact that the recipient is vested with a number of additional powers;
• sub-franchising - implies that the franchisee has the right to conclude concession agreements as a copyright holder.

Basic conditions

Franchising is causing increasing interest among domestic entrepreneurs. The proposals on this issue are quite numerous and tempting. Nevertheless, deciding on such a deal, you should be prepared to fulfill the following conditions:

• you will have to fully comply with the point of view of the franchisor and accept his philosophy regarding doing business;
• from the moment of signing the contract, you will be required to strictly observe all its conditions (therefore, if you have some comments or suggestions, it is better to discuss them until the transaction is concluded);
• you will have to stay in constant communication with the franchisor, discussing with him all the key issues;
• the business management mechanism will be similar to that adopted by the franchisor’s parent company;
• you cannot independently turn rationalization ideas into life without a long discussion with the franchisor (there is no guarantee that you will be given the "go-ahead" to make changes to the organization of production).

Franchise Benefits

Already many entrepreneurs have resorted to this type of activity as franchising. What is the lease of a trademark, in general terms, is clear to everyone. But it’s also important to know what benefits a deal can bring you. So, franchising is characterized by the following positive aspects:

• when you start your own business, you don’t have to work out management and production mechanisms, because with the acquisition of a franchise you get a streamlined business system;
• despite the control of the franchisee, you will have a sufficient degree of both legal and economic freedom;
• information about the activities of large firms is often laid out in the public domain, and therefore you have the opportunity to get acquainted with the activities of your potential partner even before the conclusion of the transaction;
• you will hardly be affected by the risks that young enterprises often face, because the parent company is already well known in the market;
• if you choose the right field of activity in accordance with the needs of consumers, then your business will be successful from the very beginning.

Thus, franchising is an ideal option for your own successful business.