Success Franchise AdvisorsWhat is a Franchise?
What is a Franchise?
According to the dictionary, the definition of a franchise is: “an authorization granted by a government or company to an individual or group enabling them to carry out specified commercial activities, e.g., providing a broadcasting service or acting as an agent for a company’s products.”
In truth a franchise is so much more, expecially when it comes to the most common form of franchising, a “business format franchise” such as Subway, Fetch! Pet Care or any of the other 3,800+ franchise opportunities to choose from in the US and around the world.
A franchise is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business methods, and a franchisee, who pays an initial fee (franchise fee) and some sort of ongoing payment (a royalty) for the right to do business under the franchisor’s name and system. Technically, the contract binding the two parties is the “franchise,” but that term more commonly refers to the actual business that the franchisee operates. The practice of creating and distributing the brand and franchise system is most often referred to as franchising.
The two most common type of types of franchising relationships are Business Format Franchising and Product Distribution Franchising. In a business format franchise, the franchisor provides to the franchisee not just its trade name, products and services, but an entire system for operating the business. The franchisee generally receives site selection and development support, operating manuals, training, brand standards, quality control, a marketing strategy and business advisory support from the franchisor. While less identified with franchising, traditional or product distribution franchising is larger in total sales than business format franchising. Examples of traditional or product distribution franchising can be found in the bottling, gasoline, automotive and other manufacturing industries.
In its simplest form, a product distribution franchise allows you to sell their products and use their trademarks but offers very little support in terms of running your business. Examples are a restaurant that sells Coke or a car dealership that sells Hondas. A Business Format Franchise includes what a product distribution franchise does (where applicable) but also offers ground up training and back end support on succeeding with your business for the lendth of the franchise term.
For most choosing a franchise model comes with lower risk than starting an independent business on your own but that does not mean owning a franchise is a guarantee for success. Not all franchises are created equally, suited for all markets and even all types of people and skillsets. Knowing which franchise best suits you and your target market is a critical piece of the puzzle.
If you are currently exploring the potential of investing in a franchise we are happy to offer a complimentary, no-obligation consultation to help you avoid potential pitfalls. Our skilled team of advisors are experts in franchising, may who are franchisees themselves and are happy to assist you. Contact us to learn more!
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