What does a successful franchise model look like?

date icon 5 minutes to read date icon 31st July, 2022

Franchising as a business model, developed more formally just over two centuries ago, although it has been in existence in less formal structures for even longer. Franchising is an excellent way for aspiring entrepreneurs to establish themselves in the business world with a strong support structure, which means that they don’t start from scratch. Instead, they are supported by the franchisor every step of the way. Franchising is becoming increasingly popular particularly due to this support but also because the franchise business model is so attractive, too. If your knowledge of the franchising model is still a bit hazy, this post will help clear things up. Let’s dig in.

What is a franchise business?

Before delving into the franchise model, it would be a good idea to take a step back and recap some fundamentals. For example, what is a franchise business? In short, it’s a formal business relationship that’s established between a franchisor and a franchisee, which is depicted in a Franchise Agreement. This Agreement sets out each party’s roles, rights and obligations in the relationship. In essence, the franchisor provides the franchisee with the legal right to operate a replicated copy of their business (whether product or service based) in exchange for an initial franchise fee and ongoing royalty payments. This is it in a nutshell, although it certainly is more complex than this. 

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Franchise model definition

For those who have heard about them but are unsure of what is a franchise model, the brief definition of this is that a franchise model is not only a legal and commercial agreement between the franchisor and franchisee that sets out the manner in which business is to be conducted. It is also a framework for the business’ success. 

It identifies the business’ customer segments and target markets, it also identifies locations where the business can be replicated, it contains processes and procedures for the way in which the business should operate and be run as well as outlines strategies for its future growth and expansion. 

However, it should be kept in mind that since every franchise business is unique and operates within different industry verticals, the franchise model will be different in every scenario. On the whole, however, it boils down to an agreement between a franchisor and a franchisee. This agreement is split up as follows:

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Responsibilities of a franchisor:

  • Owns the business brand
  • Provides business operations and products to the franchisee
  • These are sold under the brand’s name
  • Also provides the franchisee with a business model (which must be tested as a “business format franchise” for at least a year, according to the British Franchise Association)
  • Business strategies
  • Training and support, and
  • Marketing tools, resources and assistance

Responsibilities of a franchisee:

  • Pays for the legal right to operate under the name of the franchise
  • Fees may include the upfront or ongoing franchise fee, working capital and start-up costs, royalties, etc.
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Franchise models – types

There are three main franchise models that you should consider. These are product, manufacturing and business franchise models. Let’s take a look at each one in turn. 

  • Product distribution/product franchises: this type of franchise business model sees the franchisor giving the franchisee permission to “distribute a product which is branded with the franchise logo, name and trademark.”
  • Manufacturing franchises: here, the franchisee has the rights to manufacture the franchisor’s products and then sell them using the intellectual property of the franchisor. 
  • Business franchises: considered the most popular type, under this model, the franchisee is licensed and is given the rights to manage a business under the parent brand. They will be required to follow the franchisor’s systems and procedures and will also have access to marketing and sales strategies, distribution and operation systems as well as training and support.

Advantages of the franchise business model

Undoubtedly, the franchise business model carries a vast range of advantages for both franchisees and franchisors. For the franchisee, they’ll be able to enjoy quality brand recognition, get expert training and support, work with a pre-existing customer base, take advantage of proprietary technology and location assistance and get operational guidance. But in addition to this, there’s also marketing and advertising support, access to a network of franchisees and importantly: there’s a much shorter time frame to opening their business. 

As for the franchisor, they can be expected to see fast expansion of the brand, growth without sacrificing control, stable streams of revenue as well as savings on operational expenses. 

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How to create a franchise model

Several common themes should emerge by now as to successful franchise models. These may include aspects such as:

  • Total costs and investment to start operations
  • Legalities behind the formation of the franchise business
  • Marketing and advertising strategies
  • Operational support
  • Ongoing training 
  • Supplies and relationships with vendors
  • The Franchise Agreement itself
  • Commercial rights, responsibilities and obligations of each party
  • Profitability projections and anticipated returns on investment, and
  • Recommended usage of the brand, logos and intellectual property of the brand.

Therefore, if you’re considering franchising a business, these are just some of the factors that you will need to consider when creating your business model so that it is robust enough to be replicated across different territories and even internationally. 

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Closing remarks

While there is no single most popular type of business for franchising, as they come at low-, medium- and higher-costs depending on where on the financial spectrum you find yourself, it is important to think about the main elements of a franchise model when you consider converting your business into a franchise. If you need any assistance or guidance, don’t hesitate to reach out to us. We’re just a click of a button away and ready to help.