This is an opportunity to run your own business under a brand and with the support of a well-known company. In short, this is the right to use the brand, the current business model and control by the brand owner (franchisor).
From 10 thousand to 100 million rubles. Of course, there are franchises beyond these limits, but 99% fit within them. The price of a franchise depends on investments in equipment, premises, purchase of goods, personnel, marketing, as well as on the size of the lump-sum contribution.
At the moment of signing the contract, the franchise buyer (franchisee) receives from the brand owner (franchisor) the right to work under the brand, as well as a knowledge base and standards. The franchisee pays a lump-sum (entry) fee. Then he undergoes training and launches his own enterprise. The support received throughout the work is paid for through royalties - ongoing payments (usually monthly). If the franchisee wants to open another outlet, he usually signs the agreement again. The same applies if the contract period has expired.
Franchises in trade (aka ) are a way of doing business in which you not only purchase goods from a well-known company, but also open a store under its brand. The peculiarity of such franchises is the absence of a lump sum fee and royalties: they are usually included in the price of the purchased goods.
A franchise gives you the opportunity to minimize risks when starting a business. You will already have a well-known brand and experience of the management company and other partners. But don’t think that by purchasing a franchise, you have already ensured your success. It is achieved only by those franchisees who are actively involved in the operation of their enterprise.
Franchising is a form of relationship between two entities (most often legal entities) in which benefits are transferred (rights to a trademark and a knowledge base and work standards). Usually this concept is identified with a franchise, but there is a slight difference: if a franchise is WHAT is transferred, then franchising is HOW benefits are transferred.
If you want your own business, but with minimal risks and are ready to limit their freedom for the sake of profit, then franchising is your choice. If you have absolutely new idea or you understand that you are not ready to work under someone else's control - it is better to open your own business.
Buy ready business only when you know what exactly you need, you know how to run this business, and you are sure that you will find such an enterprise. If you only have a rough idea of what you want to do, or you have no experience in this field, choose a franchise.
A retail franchise is currently extremely popular among budding entrepreneurs in Moscow, St. Petersburg and other regions of Russia. This is explained, first of all, by the fact that the vast majority of them, trying to maintain their positions in the market, prefer to cooperate with more experienced entrepreneurs. For this purpose, they acquire various kinds of retail franchises. The period of financial crisis is especially advantageous for purchasing a boutique franchise. Beginning businessmen are also forced to buy a store franchise by the need to increase revenue, develop a stable customer base, and also reduce costs.
Those who decided to open their own franchising boutique retail, select the most suitable franchising in retail trade based on the size of the initial investment, the payback period, as well as the speed of reaching the break-even point.
Benefits of a Retail Store Franchise
The most important advantage for franchisees is saving their own Money. In addition, they enlist marketing, accounting, and legal support from franchisors who are already experienced in trading and have a certain influence in the market.
The vast majority of franchisor organizations provide free consultation and assistance in selecting and training employees.
It is possible for franchisees to create their own franchise networks. It is especially relevant in cases where it is planned to work not only in large cities, but also in small ones populated areas. For franchisees, this is much more effective than joining an already existing franchise network.
Retail franchise catalog
The store catalog contains a wide variety of franchise offers trading companies and boutiques for those who are planning to buy a trading company. The most popular franchise offers from retailers contained in the catalog today are considered to be the following:
- chain of boutiques of linen and sheep wool products “Fashionable Sheep”;
- auto parts salon “Korika-auto”;
- men's clothing salon "Circle Boutique";
- shoe salon self made"Migliori;"
- network of auto parts stores for foreign cars “Avto-Koreets”, “Avto-Japanese”.
If you are interested in the offer of any specific organization from those presented in the catalog, then you can go directly from the catalog to the official website of this organization to obtain more detailed information about the terms of cooperation, the amount of initial investment, the amount of royalties, requirements for franchisees
When a person opens his own business, he has to face many problems - promoting a brand from scratch, developing technologies. In such conditions, it takes years to achieve a decent result. But at this time, competitors do not stand still, as the heroine said Carroll, « to stay in one place, you have to run" That is why everyone who knows what a franchise is and how it works tries to compare the possibilities of a franchise before investing a lot of money in their business.
- What is a franchise and how does it work? How to buy a franchise and what typical mistakes do entrepreneurs make? We will try to provide as complete information as possible.
What is Franchise in simple words
Franchise- This is when enterprises with proven technology and a well-known brand allow other companies to use their name. In addition to the name, they also transfer other knowledge, such as production technologies, corporate standards, patent rights and inventions. This is the definition of a franchise. in simple words.
The first company that comes to mind when we hear the word “franchise” is McDonald's, but franchising has much older roots. Isaac Singer, inventor of the famous sewing machine Zinger, in 1858, pioneered the concept of franchising. He began selling licenses to distributors in different parts of the country, providing them with his own product and training staff.
According to the formal definition, a franchise is permission to a legal entity or individual to use the benefits franchisor. In this case, the one who acquires this right is called franchisee, and the whole business model is called franchising.
Sometimes this right is transferred free of charge, but more often franchisee obligated to pay for the benefit received. The fee is divided into two parts:
- Lump sum payment. A one-time amount that is transferred upon concluding a franchise agreement.
- . Monthly or annual payment.
Each franchisor company develops its own conditions, which may differ significantly.
- In Russian legislation there is no concept of a franchise. Chapter 54 of the Civil Code of the Russian Federation introduces the definition of a commercial concession, according to which the rights holder transfers a set of benefits.
The aforementioned fast food restaurant chain owns less than half of 36,000 restaurants; most are open under franchising conditions. grants the right to use its famous brand, logo, menu, and so on. Businessmen who own restaurants, in turn, pay fees (royalties), which are calculated as a percentage of sales.
This is the basic trade-off in a franchising relationship. Franchisor ( in this example McDonald's) allows other people (franchisees) to use the business model and brand recognition, and in return receives a percentage of the turnover.
What is royalty and lump sum in a franchise?
One of the most frequently asked questions is how much does it cost to open a franchise business? You can estimate costs at the stage of choosing a franchise.
A down payment in the form of a fixed amount is called lump sum, periodic payments for continued cooperation – royalties.
In exchange for the right to use the franchisor's name, product or technology, some or all of the following fees are usually required:
- Lump sum payment– an initial non-refundable franchise fee. The size of the amount varies greatly, but the tendency is this: the higher the degree of brand recognition, the more expensive it is to enter “under the wing” of a strong company.
- are paid on a regular basis ( monthly or quarterly) during the term of the contract. A kind of membership fee, essentially. Fixed amounts or percentages of gross sales - options vary.
- Tuition fee– some franchisors include training in the lump sum price, some include it as a separate line item.
- Advertising fees contributed to the advertising or marketing fund of the parent company. This money is spent on TV and radio advertising, development and printing of POS materials (booklets, posters, leaflets).
- Franchise renewal (renewal) – fee for renewing the franchising agreement.
Large franchisors often develop several schemes for entering a brand. Preliminary calculations of payback and profitability for a specific region are taken into account.
For example, the franchise 220 volt» is transferred free of charge, but the partner undertakes to purchase goods only from the franchisor.
Types of franchises
The word franchise translated from French means " benefit" As you know, there are different benefits. Depending on how different franchisors allow you to use their name and what they offer in return, there are three main types:
- business franchise;
- commodity;
- production.
Business franchise
What is a franchise in business format? This is the most common type of relationship in which the franchisor offers an established business, including a name and trademark, to independent entrepreneurs. A good example This type are fast food restaurants. The franchise catalog presents long-established brands - Papa Johns, Coffeeshop Company, and new ones – “ Food from the Champion", bar " Honey, I'll call you back».
The franchisee receives assistance from the parent company in the selection, layout and design of premises, recruitment and training of personnel, and development of the marketing component. Lump-sum fees and royalties vary greatly, sothat it is necessary to carefully look at the conditions of each specific company. This type of franchise is often called a “turnkey business”, since the franchisee receives almost everything necessary to open their own business.
Product franchise
The franchisee receives the right to distribute the product manufactured by the franchisor. Well-known product franchises are, for example, any other car manufacturer, some brands of clothing and shoes: Incanto, BAON, ALBA.
This type of franchising often involves no licensing fees. The franchisee is required to purchase a certain volume of the franchisor's product or range of products. And he provides national advertising campaigns, provides the logo and trademark.
Manufacturing franchise
The manufacturer grants the right to produce and sell goods using its brand and trademark. This type is widely used in the food and beverage industry, for example -.
Another technical point that is important to understand when looking for a suitable investment idea. The rights that a franchise agreement provides vary greatly in one case or another.
What are the franchises?
- Direct franchise– the franchisor grants the right to open one enterprise in a specified location. The oldest and simplest form of relationship. The disadvantage is this: if the franchisee has the desire and ability to open additional points, each time a new agreement and new cash contributions are required. That is, using the example of a clothing store: it is impossible to open another store without coordinating the issue with the parent company and without paying a lump sum fee.
- Multi-franchise– the buyer receives the right and obligation to launch a certain number of production/sales locations in a certain territory for a fixed period of time.
- Master franchise is similar to the previous paragraph, but has one significant difference: the franchisee receives the right and obligation on his own behalf to sell the franchise in the territory approved by the agreement. The master franchisee becomes the franchisor in his region.
Let us emphasize once again: in the last two versions of the franchising agreement, rights and obligations are provided.
If the franchisee does not maintain the contractual pace of development and expansion, this is punishable by: termination of the contract, penalties, transfer of exclusive rights to another businessman, etc.
In addition, there are the following types of franchises:
- Free. The franchisee receives the right to use the brand, but his actions are not controlled by the owner of the rights.
- Silver. In this case, the company opens a branch, organizes its activities and only after that sells the right of temporary use.
- Golden. Transfer of monopoly rights to conduct business under the brand of the copyright holder in a certain region. The buyer of a gold franchise decides for himself how he will use the name and develop the business.
- Import-substituting. This scheme is somewhat reminiscent of plagiarism. A businessman works in the country under the name of a well-known company, but does not pay royalties to it. How is that " Adidas" And " Abibas", the names are similar and there is nothing to complain about. However, such a business has nothing to do with the original brand.
The Civil Code requires that every commercial concession agreement be registered with Rospatent. In this case, the franchisor must first register its trademark and technology there. It is theoretically possible that McDonald's will miss the re-registration deadline, then any entrepreneur will be able to register it.
Almost every industry has successful, established business practices. Franchises of retail stores, beauty salons, fast food restaurants, manufacturing facilities and many others are for sale. For convenience, we have compiled some popular brands into a table - a mini-catalogue of franchises.
| Lump sum payment | Total investments | Payback period | ||
|---|---|---|---|---|
| Dodo Pizza | 350 000 | 3-5% | 3 000 000 | 1 year |
| Pizza Celentano | 400 000 – 800 000 | 2% | 2 000 000 | 1 year |
| Papa Johns | 1 000 000 | 6% | 10 000 000 | 2 years |
| Domino's Pizza | 2 000 000 | 7% | 15 000 000 | 2 years |
In the pursuit of profit, it is important to strive not only for immediate benefits. Ray Kroc, the founder of the more than once mentioned McDonald’s chain said:
"If I had a brick for every time I said 'quality, service, cleanliness,' I think I could cross the Atlantic Ocean."
What should be in the contract
A typical franchise agreement consists of several hundred pages. About, what is a franchise in simple words It’s hard to explain, and it’s even harder to do it on paper. Therefore, without legal support, a businessman will not be able to understand the intricacies. For example, the Civil Code contains the following norms:
- The duration of the contract does not have to be specified. But if there is one, we need to agree on the terms of the extension.
- Only legal entities and individual entrepreneurs have the right to be parties to the contract, individuals this is not available.
- The agreement cannot be concluded in any form other than written.
- The franchisor is obliged to teach its own technologies not only to the franchisee, but also to his employees.
- The franchise buyer must comply with all requirements of the seller to ensure product or service quality.
The contract stipulates control technologies, be it secret shoppers, passing exams or visits from inspectors.
How not to fall for the bait
Upon entering the franchisor’s website, the visitor blossoms with delight. And the investments are minimal, and the support is comprehensive, they promise bonuses and entice with gifts. This is all located on a one-page website.
When it comes to signing a contract, a businessman finds a document in front of him on a hundred pages. This is not an exaggeration; this is exactly the size of a standard contract. Moreover, it was compiled taking into account the interests of the franchisor. The franchisee must take care of how the franchise works and how it protects him on his own. Even if at first glance the offer seems tempting, you should only believe the agreement written on paper.
When concluding a contract, it is worth engaging a lawyer; his fees will be repaid many times over in subsequent savings. If you make your additions to standard contract It will be difficult with McDonald's, then you can insist on canceling or changing several points in the agreement with a lesser-known company without any problems.
What questions should you ask the franchisor?:
- When did the franchisor start selling the franchise? If the franchise is young, and the results of the franchisee’s activities are not yet clear, this is another reason to think about it.
- Is the business financially successful? Having seen the results of activities over the past three years, you can roughly navigate the prospects own business.
- How many franchisees have closed? The percentage of successes and failures is not a theory of probability, but specific numbers that give an idea of the chances.
- What support is provided? Assessing premises, training staff, calculating payback, advertising and promotion in a new region? What does the franchisee get besides the brand?
The short list of questions can and should be supplemented by questions that arise during the study of the proposal. And most importantly: business is not a statue carved in stone, everything flows and changes.
Pros and cons of a franchise
A business system that has been time-tested and tested more than once in different regions is the undeniable and main advantage of buying a franchise. Do you want to score big on your own or copy the experience of a successfully developing and competing company?
Arthur Bartlett, founder Century 21 Real Estate: “Franchise became the savior of free enterprise, it gave small businesses a chance to survive...”
Yes, franchising a business does reduce the risk of failure. Not as significant as the advertising brochures of interested companies promise, but still. US statistics confirm that 90% of independent business projects fail within the first three years.
Compete with big business individual entrepreneur- difficult task. A recognizable brand and special terms of cooperation are an obvious advantage that a franchise gives.
“The world does not stand still. We don't deserve to be where we are if we don't stay ahead of the curve and take the necessary steps to remain competitive." Fred DeLuca, founder Subway.
The franchisor provides proven business technologies that are constantly being improved: advertising, marketing, administrative support. Lack of knowledge and experience is not a problem - the franchisor provides training for the franchisee.
In many cases, the franchisee receives exclusive territorial rights, a monopoly on the allocated area. Of course, under the franchisor's trademark. If the brand is successful and recognizable, it will “crush” competitors in the niche.
- The sad fact is that some franchises achieve 80% failure rates, while others experience almost no failures.
Before signing an agreement, you need to carefully read the statistics: how many projects are successful, how many were closed. Communicating with franchise owners is not the last thing; you don’t need to waste money and time on this point. OpeningFranchises may seem like an easy way to start your own business. But some factors are not striking, and the idea is so tempting that the potential franchisee steps on the rake of unsuccessful predecessors.
Franchising is not a flexible method of doing business. The features of a particular location, which the franchisee clearly sees and understands, are often not obvious to the franchisor. Make changes to the business format, offer additional discounts to customers, select products in accordance with customer tastes ( V retail store, For example) – not always possible.
If an agreement is signed obliging the franchisee to expand the network, the business is obliged to work well and bring profit to the franchisor. Failure to comply with agreements is a reason for the franchisor to refuse cooperation without compensating any damage to the franchisee.
Instead of output
You can already understand what a franchise is in simple words - it is an agreement that allows one of the parties (the franchisee) to sell a product or service using the trademark, marketing strategies and technologies of the second party - the franchisor.
- Franchising is a progressive method of doing business that benefits both parties.
During " catch the stream" And " collect the cream"on a new trend - the dream of any entrepreneur. However, here it is better to do the opposite. You need to look for a franchise that has already proven itself. Sustainable growth and a low percentage of failed franchisees are the only indicators you need to focus on.
Marriott, founder of a hotel chain: “My life experience shows that success is never final. We make decisions on the way to the final result.”
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Franchising is a common form of partnership in business. This trend has gained popularity in many segments, but most often it is found in trade. Each of us probably bought goods or used the services of franchised enterprises without knowing it.
Franchise - what is it in trade?
A franchise is a type of market relationship of a commercial concession. It means long-term business cooperation and partnerships between several companies.
The essence of franchising is the resale of the right to use a brand along with the developed business technology. As a rule, a large well-known company with a well-advertised name resells the right to use it, along with the technology for selling the product, to other market participants - companies independent of it.
The franchise agreement identifies the following participants:
- A franchisor is an enterprise that, for a set fee, transfers its brand, know-how, business scheme or operating systems for use.
- A franchisee is a company that acquires the opportunity to receive training and assistance in opening a new business project, wants to work under a well-known brand, and also pays an agreed amount for the use of a trademark, know-how and other business tools.
They form a reliable partnership scheme, which is built on the principles of mutual benefit. The parent company receives additional income from the sale of the right to use the brand, the opportunity to expand and increase recognition, and develop new regions. The franchisee, in turn, without experience in a certain field, can start working under famous name, use technologies that have already shown their effectiveness, and not risk losing your initial investment.
What is a franchise and how does it work?
The word franchise means permission to trade. For example, the 33 Bears enterprise produces waffles that are in demand in the consumer market. Special equipment has been developed that has shown effectiveness, and there is a desire to open new points, but financial assets not enough for further development. This creates the need to sell a franchise.
After submitting an advertisement, the business owner receives offers of cooperation. A young entrepreneur who has startup investments wants to enter the market under the name “33 Bears,” which is known in his city. He is ready to pay for the process of joining the franchise network, make periodic payments after receiving a profit, use the recommendations of the parent company and work according to established rules. For this, he receives a number of advantages over new companies that are trying to conquer a niche on their own. “33 Bears” has already shown its effectiveness, so the franchisee has minimized risks and can operate using a proven trading business model.
There can be several options for cooperation - the franchisee produces waffles on their own by purchasing equipment, or simply sells them by purchasing products from the franchisor. In addition to production technology, he can use many years of experience, business support and consulting support from his partner. Thus, the franchisee skips the development process and minimizes risks.
Today's statistics in small business are disappointing: half of the companies that open in the trade sector stop their activities without even working for a year. Another 20% of the remaining ones are closed within 2-3 next years. In conditions of fierce competition and oversaturation of the market, the fittest, who has many years of experience or successful business systems, survives.
Popular and stable enterprises annually spend large investments on advertising, promotion trademark. A lot of resources go into informing potential client about location point of sale. When purchasing a retail franchise, the franchisor company most often supplies a brand book and advertising materials. Moreover, she is interested in promoting her partner - the franchisee, so she will provide all kinds of multi-level support. It often helps in forming a product line and choosing a location for a future outlet.
The history of the concept of “franchise”
The term "franchise" was first used in 1851. The founder of this partnership in the field of trade can rightfully be considered the Singer company, a manufacturer of sewing equipment. This was the first enterprise that began to sign agreements with partners for the right to sell and provide services for the company's products in the specified territory of the United States.
Singer founded a new distribution and advertising model at that time, which formed the basis of the retail franchise. After this, such partnership began to develop in the automotive industry, during the World War it migrated to the hotel and catering business. But a big breakthrough happened in the 50s after the opening of the McDonald's chain.
In 2000, more than 8 thousand franchisors successfully worked on the global trade market; today this figure has increased to 18 thousand franchise sellers and more than 1,500 million franchisees.
How much does a retail franchise cost?
Those wishing to work as a franchise in trade will have to pay for the use of the trademark. The monetary equivalent depends on the pricing policy and requirements of the franchisor. But regardless of the specifics of the company, whether it will be or , all payments are of two types:
- – one-time fee for working under the chosen brand. The partner pays for it when signing the contract. Its size depends on the specifics of the franchisor company. It can be different - from hundreds of dollars to hundreds of thousands of dollars. The size of the payment is influenced by brand recognition and the scale of the business. For example, opening a supermarket will cost much more than launching a new cheburek.
- Royalties are periodic financial deductions in trade from the franchisee's turnover. The amount of such contributions may also vary depending on the requirements of the franchise seller, as a rule, it is 3-10% of turnover.
Advice: It cannot be argued that royalties and lump sum fees are solely a purchase of the right to use the brand. In addition, the franchisee receives support - consulting support, recommendations for opening a point (from the design of the premises for trading to technologies that simply need to be adapted to their conditions and requirements).
Advantages and disadvantages of franchise cooperation in trade
Franchising partnerships have both supporters and opponents. The great popularity of this business mechanism indicates a number of benefits, but like any other model, it is not without its drawbacks.
pros
For franchisees, the system of doing business under a franchise in trade means having their own business and professional support. There are a number of advantages:
- A ready-made business that practically guarantees stable income. A partner can evaluate its effectiveness by studying the activities of the parent company. If it has proven itself in the domestic or even international market, is in demand, and is actively developing, why not consider and purchase one of them?
- Buying a franchise is a reliable method to master a certain niche in trade and expand your activities.
- By signing a franchise agreement in trade, a partner receives the right to work under a well-known brand; there is no need to waste resources and time on promoting his company or conducting marketing events. The franchisor has already done all this.
- Support from the copyright holder - since the franchise seller himself is interested in the success of the new enterprise, he will provide comprehensive assistance, especially at first. The degree of support depends on the company itself; this may include staff training, provision promotional materials, support during the conclusion of a lease agreement, legal assistance and etc.
- Providing the knowledge base and valuable information you need to get started. Not every aspiring entrepreneur who opens a business on his own can obtain such information - this is an analysis of the market, competitors, and consumer demand.
- A franchise in trade is not only about instructions and work plans. Cooperation presupposes a constant partnership, which a newcomer so lacks.
Minuses
In addition to obvious undeniable advantages, the model is not without disadvantages:
- Additional financial costs. Payment of royalties and lump sum fees can be quite high; this money could be used to develop your own business. Therefore, many do not want to overpay and open a business on their own.
- Compliance with strict regulations. After signing a trading franchise, the franchisee must follow the established norms. They may concern not only the specifics of room design, but also the choice of assortment, client policy, and choice of suppliers. The franchisee may not like some requirements, but he is obliged to fulfill them.
- Periodic quality control. Since the parent franchisor company cares about its reputation, it regularly checks the activities of its franchise outlets. Constant checks can slow down their activities.
- Closed list of suppliers. Many franchisors specify specific suppliers that the franchise buyer must work with. In some cases, this is impractical due to geographical location or regional characteristics.
- Possibility of unilateral termination of the agreement. If, in the opinion of the franchisor, his partner does not comply with the terms of the agreement, he can terminate it.
Save the article in 2 clicks:
A franchise in trading is suitable for those who do not want to start on their own and want to hedge their bets by receiving support from information resources more famous company. This means that in this case, resources are not needed to promote the brand, since the parent company has already done this. In this case, you need to sacrifice a certain amount of independence and give away part of your proceeds.
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