What is a franchise in simple words? Franchising - what is it? Concept, types, conditions of Franchising activities

Broker– an independent person acting on behalf of the owner of a ready-made business. A broker is an intermediary between the seller and the buyer. He transfers clients interested in buying a franchise to the seller, charging him a fee for the services. At the same time, clients must independently determine whether they are satisfied with the terms of cooperation with the franchisor.

Franchising or commercial concession agreement– an agreement that reflects the essence of the franchise. The agreement contains information about the organization of a specific type of activity, the specifics of the transferred business, the amount of initial contributions, the rights and obligations of the parties. This document is usually drawn up by the franchisor. It records all the features of the company and the nuances of doing business.

Marketing services- product promotion activities organized by the business owner (franchisor) and regularly paid by the franchisee - in the form of a percentage of gross sales. In some cases, the payment amount may be fixed.

International Franchising Association- global distribution center. It is an independent non-profit organization located in the city of Washington. Engaged in compiling franchise catalogs containing all the necessary information about franchisors and their business concepts.

Franchise package– a franchise package, which includes the services that the franchisee purchases from the copyright holder and the conditions on the basis of which the business is conducted. This includes the brand name, instructions for organizing the business, services and assistance provided by the franchisor, know-how and the payment system. All components of the package are reflected in the commercial concession agreement.

Lump sum payment– a one-time remuneration that the user (franchisee) transfers to the copyright holder company in exchange for a franchise package. This amount serves to reimburse various expenses of the copyright holder, which he is forced to bear in the process of developing a business system, attracting and training franchisees, and then supporting their commercial activities.

On-site support– assistance in doing business that the franchisor provides to the user by meeting him in person or communicating by phone/Internet.

Potential franchisee– an enterprise or individual interested in purchasing a franchise license and planning to engage in franchise business.

Russian Franchising Association is an independent organization that represents and protects the interests of its members. Its goal is to promote franchising in the Russian Federation by creating favorable economic and legal conditions. The association arose in 1997 on the initiative of the largest franchisors in Russia.

Royalty– payments that the franchisee regularly transfers to the franchisor. Most often this is a percentage of sales. However, some franchisors prefer a fixed monthly payment.

– this is compensation for the expenses of the franchisor, who provides assistance to its wards in the development and promotion of the business and organizes research to evaluate its effectiveness. In fact, royalties are the main source of income for the copyright holder company. For this reason, the franchisor is interested in close and effective cooperation with licensees, thanks to which business profitability increases and both parties benefit.

Duration of the franchise agreement– as a rule, it is 5 years, and can be extended if:

• the user regularly fulfills all obligations to the copyright holder;
• means of production are properly standardized;
• The franchisee's activities do not go beyond the limits established by the franchisor.

Extension of the contract may be subject to a fee.

Subfranchisor (master franchisee, master franchisee)- a franchisee who receives from the franchisor exclusive rights to resell the business to third parties - subfranchises. The activities of the subfranchisor are geographically limited. Subfranchising is a practice common in the global economy.

Territory of use of a complex of exclusive rights (Exclusive Territory). As you know, franchising is territorial. The copyright holder allows users to act in a limited area. But if, due to the nature of his activity, the franchisee is forced to move, he receives exclusive rights, which he can use within a specific city or region (that is, a specified administrative unit) for the purpose of business development.

Franchising system often suffers from excessive concentration of franchisees operating in one segment. On the other hand, an increase in the number of licensees leads to their dominance in the market and weakening the position of competitors. Such franchisees can conduct joint marketing activities that bring good profits.

Trademark– a designation that is used to individualize goods and services. Can be verbal, symbolic or a combination. A trademark (brand) is officially registered. The manufacturing company is granted exclusive rights to use it.

Franchisor– a company that grants a small enterprise or individual entrepreneur the right to conduct business on its behalf.

Franchisee- a businessman who, in exchange for a lump sum fee and monthly payments (royalties), receives the rights to use the franchisor’s ready-made business system, subject to compliance with all his requirements and following his instructions for organizing activities.

Franchisees of branch systems- an entrepreneur or organization that acquires from the franchisor the right to commercial activities within a certain territory and manages all retail outlets on its own. An agreement with the FSF usually implies the development of the territory. If the FSF is unable to fulfill this condition, the copyright holder may take appropriate measures.

Franchising– a model of cooperation between the copyright holder and the user, within which the first transfers to the second the right to organize and conduct commercial activities on his behalf, and also provides support and support for the business. This is done in order to promote certain products or services provided by the copyright holder and expand the already known network of enterprises.

Business format franchising– this type of cooperation in which the franchisor gives the user the right to act under his own name and provides him with ready-made solutions for running a business. This is a complex type of franchising.

Franchise– object of the commercial concession agreement; business relations between the parties to the agreement, within the framework of which the franchisee is endowed with a set of rights and technologies, as well as branded attributes. For the use of these benefits, the franchisee must make monthly payments. A franchise is also a name given to a business outlet operated by a franchisee.

Turnkey franchise– a fully equipped retail space transferred to the user under a franchise agreement.

Royalty efficiency– the stage at which the profit from monthly payments transferred by the user to the copyright holder begins to exceed the amount of the franchisor’s expenses to support the franchisee’s activities.

In this material:

The concept of franchising

Literally explained, franchising is a type of preferential entrepreneurship. This is the name of one of the many forms of equal business relations and partnerships. In this connection, the franchisor and the small company have equal cooperation rights, sealed by agreement.

To be more precise, franchising is a type of long-term business relationship between several companies, with a few notes:

• a well-known company sells the rights to a particular product to a franchisee;
• independent businesses take advantage of the franchisor's popularity.

The whole essence of this system is that a large company, which has proven itself well among consumers, enters into many contracts with small and, for the most part, independent firms. Thanks to this form of cooperation, independent entrepreneurs receive special rights to a product using a trademark that is already well known to consumers.

The names of the parent company and the name of the independent enterprise have a clear definition:

• franchisee- this is an independent company (or entrepreneur) that acquires from the franchisor the right to study and provide assistance in creating a business, while paying a certain fee for the operation of a well-known brand, know-how and additional systems provided directly by the franchisor;
• franchisor is a well-known company that has a widely used trademark and provides it for use by independent enterprises (entrepreneurs) for a fee, and also, in addition to the brand name, provides additional systems and know-how.

In the case of small companies that have just been created and are not yet famous, this form of cooperation is very useful and even convenient. Particular convenience is due to the fact that an independent company does not need to spend a lot of money on advertising, since the intended consumer will receive a product with a trademark that is familiar to them. The popularity of the brand and the number of possible consumers also play a significant role. Thus, the greater the popularity, the more likely the rapid promotion of the franchisee.

It should be borne in mind that the amount of services provided for an independent company will, of course, be significantly lower than the expenses for advertising and promotion of its own trademark.

Franchising interactions

As a rule, a company with a popular trademark (franchisor) does not form a connection with a single small company (entrepreneur). Instead, the franchisor creates many contracts with many different small enterprises (companies), thereby creating a whole network of its product and industrial branches. As a result, the franchisor forms small enterprises independent from the parent company that use the franchisor's trademark.

It should be taken into account that the contract includes full compliance with all the rules, which may include:

• principle of trade;
• uniform (and other small items);
• production of products.

While the franchisee, according to the contract, follows the prescribed rules, the franchisor is obliged to provide all possible support to the independent enterprise (entrepreneur):

• provision of raw materials;
• delivery and supply of equipment;
• technology transfer;
• providing the necessary knowledge to all service personnel;
• additional services to assist with accounting.

The franchisee also has full rights to:

• exploitation of the trademark of the parent company;
• application of the style and design of the parent company;
• using the reputation of the parent company among other enterprises, which, to one degree or another, are equated to the franchisor.

A franchise is a variation of doing business that is provided by the franchisor to the franchisee at the time of concluding an agreement. The franchise is also called a franchise business package. Typically this package includes:

• detailed manuals for carrying out work;
• other, additional documentation that makes the transaction of the enterprises equally equal.

In the vast majority of cases, the relationship between the parent company (franchisor) and an independent enterprise (franchisee) brings equal benefits to all parties.

Franchisees are required to strictly follow the prescribed rules.

1. Conduct business according to the stops established by the franchisor.
2. Fully comply with the deductible.
3. Take direct part in all events and promotions created by the franchisor.

As a result, the franchisor provides the franchisee with everything he needs:

• attracting a mass of unique consumers;
• many new deals;
• increase in sales;
• high-quality advertising without special expenses.

Thanks to the work done by the franchisor, the franchisee does not need to compete with other independent, and not only, enterprises. This is of significant importance, since for franchisees, without support, this would be a very big problem.

The franchisor, as the parent company, is obliged to provide the franchisee with all the required assistance in running the business, so that the independent enterprise has the opportunity to carry out the operations required of it with strict regularity.

Because of this form of cooperation, a small enterprise gets the opportunity to conduct licensed, independent business activities with maximum use of the trademark of the franchisor and its clients.

Franchisors usually undertake:

• advertising campaigns;
• delivery of products.

Under such a system, the franchisee of the agreement under any circumstances remains an independent enterprise and undertakes to pay the fee agreed upon under the agreement to the licensor for the provision of all services prescribed by the franchise. Franchisors cannot violate contracts, as this risks numerous penalties.

• legal requirement for financial services (lending) from the franchisor;
• necessary equipment (with leasing conditions);
• employee training (improvement of qualifications, additional consultation, etc.).

In a general sense, franchising is:

• business development of any type with financing;
• a way to sell a variety of services and goods.

Franchising is divided into several types:

• product franchising - large product sales networks are organized, with the parent companies being responsible for advertising, know-how, spare parts and tools;
• franchising of services - numerous foreign companies operate on this principle: they rent premises, train employees in the necessary skills, and provide the equipment required for production.

Features and Notes of Franchising

In a shortened explanation, franchising is a system of relationships consisting in the transfer by the franchisor (a company that is particularly popular among consumers) to the franchisee (an independent company without an established image) of a number of its products (branding and style).

The franchisor, at the same time, is obliged to provide full support to small businesses:

• provide technological assistance;
• and full consultation on any issues.

Sources of income of the parent company

The franchisor receives the main profit:

• from supplier discounts;
• from the initial contributions of an independent organization;
• from advertising fees of small companies;
• from bonuses received after selecting premises and technologies for franchisees;
• from interest on loans provided to cooperation participants.

Hello, dear readers of the blog site. The term franchise (from franchise, translated as “benefit”) refers to a more complex concept - franchising.

Film 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 this is the beginning of the formation of a franchise (the Marvel universe, for example). The initial film essentially becomes a popular brand that can continue to be mercilessly exploited. Anyone who wishes to do this will release royalties to the copyright holder (starter).

A second film “about the same thing” comes out, then a third, a fourth. They are called sequels, prequels, remakes. But, in essence, these are “products” produced using proven and patented technology. They are less likely to fail at the box office because they have the success of the franchise's founding film behind them.

Although, the ancestor can be not only a film, but also a book, as, for example, happened with the world’s most popular media franchise about Harry Potter. And on the contrary, a book can be written based on the film, again as a franchise. Its author will receive an advantage (due to the fame of the film), but will pay a bribe to the copyright holder. All is well (except for the readers of this book 🙂).

Some terminology

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

Let's 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. Essentially, 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 franchising object itself. For example, McDonald's restaurant in Moscow. It was built with the money of a Russian investor (franchisee), but at the same time it operates in compliance with a number of strict conditions and standards.
4. Royalty, lump sum and advertising fee are the names of the investments made by the franchisee.
   1. business entry fee.
   2. monthly payment in favor of the franchisor (right holder).
   3. Advertising fee is an annual payment in favor of brand development.
   4. In addition, there are also classic investments.

Where did franchising come from?

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

The method was far ahead of its time, so the next major franchises did not appear until a hundred years later. Companies were among the first to practice franchising McDonald's and Ford.

Fun Fact: What's notable about the franchise is that it was a product of the 1930s recession (the Great Depression in the States). To avoid bankruptcy, campaigns began selling the right to operate on behalf of their brand. That's how we survived.

The essence of a franchise business

Let's consider the principle of operation of this method of doing business. using the example of opening a brand franchise"Tasty coffee". The trademark, of course, is fictitious (and please consider all similarities to be accidental), but it is suitable for clarity of calculations. Prices are taken from a similar, real-life chain of coffee shops (which one is it?).

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

Requirements for a franchisee (person renting a business model)

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

1. An empty space of 8 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 purchasing a franchise, the investor is required to provide bank statements (what if he is naked as a falcon and is only puffing out his cheeks).

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

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

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

Let's consider his actions, depending on the investments made by the participants of this scheme (junior partners, i.e. franchisees):

1. Lump sum payment(for entering a business under this scheme) – 100,000 rubles. Where is he going? For a hundred thousand lump sum fee, the franchisee receives the rights to open a coffee shop under the “Tasty Coffee” brand, as well as instructors for staff, his personal instructor and even a manager who will manage the entire process of preparation and opening (and will also establish ). Service, however.
2. Investments in development– 250,000 rubles. What is it spent on? Having received another two hundred and fifty thousand, the franchisor (copyright holder) begins work on the premises, namely: its major renovation, the purchase of branded equipment and bringing the design to the required standard.
3. Advertising fee– 50,000 rubles. How are these funds spent? Having collected 50 thousand rubles from each owner (acquirer) of the franchise, its owner (not himself, of course, but specially trained people) conducts an advertising campaign with this money. At the same time, not each outlet is promoted separately, but the entire brand as a whole.

It is important to understand that in this example the investments are described separately for ease of understanding. In practice, a lump sum contribution and investment in development are usually issued in one package. Most often, the franchisor insists on the immediate start of work immediately after transferring the rights to the brand.

Interesting fact: the interesting thing about franchising is that it is a very diverse business. There are franchising schemes for selling flowers, making pipes and organizing hotels. Essentially, this is a model that can be stretched onto any business framework (see the example of the film industry given at the beginning of the article).

How does a franchise differ from a regular business?

Let's return to our cafe from the non-existent “Tasty Coffee” chain. After the completion of repair work and staff training, the establishment begins to operate.

Overall this similar to the work of an ordinary private business, but with some reservations. Let’s talk about them in more detail and, for clarity, compare all this with running a regular business (for example, an individual entrepreneur).

General provisions	Differences
In both cases, success depends on the amount of effort put in. No matter how much the franchisor helps with the business, if there is no control over personnel and equipment, the franchise will go bankrupt.	Payment of royalties, which an individual entrepreneur does not have. Depending on business conditions, royalties range from one to five percent. For example, with revenue of 250,000 rubles per month, royalties will be from 2,500 to 12,500 thousand.
The tax system is common in both cases. In the CIS, franchisees and private entrepreneurs are the same from a tax point of view.	Working and closing conditions. The franchisee is not a private entrepreneur, so he must coordinate major decisions with the franchisor. More on this below.
The same principle of operation for both business schemes The franchise will operate in the same way as a private establishment. Open, close, keep records. Nothing special happens.	Having a proven business model. From the point of view of a successful start, a franchise is an enterprise with a minimum amount of risk.

So you understand, right? With the help of a franchise, you stand “side by side with the big guy.” It doesn’t blow you so much, he will support you if anything, and the stability of your business is many times higher (15% of failures when working on the franchising principle and 85% when working according to the usual scheme during the first 5 years - statistics are harsh).

It is clear that such support comes at a price. If you like risk, choose the usual scheme. If you prefer a bird in your hand, a franchise would be a good solution (although not ideal).

Now about the sad (or joyful?) A franchise can be closed either planned or unscheduled.

1. Planned closing a franchise. Like any type of lease, a franchise opens for a certain period. If, upon expiration of the contract, the parties have no claims against each other, and the franchisee has no desire to renew the contract, the scheme simply ceases to operate.
2. Unscheduled closure of a franchise. A franchise can be closed ahead of schedule in the event of bankruptcy of one of the parties or on the initiative of the franchisee. In this case, the franchisee is required to report the closure six months before cessation of activity. This figure is universal for all contracts.

Speaking of risks, one cannot help 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 is advisable to consider risks and benefits of only two sides.

For the franchisor (copyright holder)

Advantages	Flaws
Reduced capital requirements. The franchisor invests a minimal amount of money in business development.	Insecurity of intellectual property. There are cases when a franchisee, using an acquired business model, created his own brand. The franchisor is not protected from such theft by law.
Increase in sales level. A standard agreement implies that the franchisee will purchase raw materials from the franchisor. This ensures stable growth of the industry.	Risk of losing reputation. If a franchisee conducts business in bad faith, this will affect not only his franchise, but the entire brand as a whole.
Brand development. The presence of franchises in itself is good advertising for the owner company.	Lack of complete control. By transferring the rights to conduct business to third parties, the franchisor is deprived of the opportunity to independently control the development of the business.

For the franchisee (tenant)

Advantages	Flaws
Successful start. By starting to operate under the name of a well-known brand, the franchisee is almost 100% guaranteed a successful entry into the market.	Lack of free access to the goods market. The contracts clearly state the requirements for the goods. This completely eliminates the possibility of having multiple partners and experimenting.
Minimum promotion costs. Since the entire brand as a whole is advertised, all the work of the franchisee in this direction comes down to the annual payment of advertising fees.	Lack of opportunity to directly influence the development of the brand. All global decisions regarding the further development of the brand are made exclusively by its owners.
Guaranteed supply of raw materials. The franchisor usually produces the goods it sells itself, which eliminates the risks associated with working with suppliers.	Difficult exit from business. Trying to protect themselves as much as possible, franchisors include a large number of prohibitions in the contract, making it difficult for franchisees to exit. For example, a ban on opening a competing business and using developments.

Interesting fact: the largest franchise company in the world is the fast food chain Subway. It has more than 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.
   It is also the most common. The franchisee sells goods under the franchisor's brand. For example, a Nike store in Kyiv or Adidas in Warsaw.
2. Industrial.
   The very first one to appear on the market (remember Singer). The franchisee, using the franchisor's technology, produces the product. For example, Apple and Samsung factories in China, Audi plant in Russia.
3. Service.
   It resembles a commodity one, only the franchisee sells services, not goods. For example, a European chain of dry cleaners or a chain of private music schools.
4. Back.
   The reverse can be any of the above types of franchising. Its essence is that the franchisor already pays the franchisee a royalty (in this case, 70-80 percent of turnover).

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

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Franchising is a form of cooperation when a well-known brand offers a novice entrepreneur the right to use its name. The subject of sale is not only the name (trademark), but also technology, equipment, a package of documents, and a marketing strategy. All together they form a full-fledged business model, which the entrepreneur has the right to use immediately after the purchase.

Important! The franchisor (selling side) transfers to the franchisee (buying side) technologies that allow the business to get on track as quickly as possible. The proposed business model is called a franchise.

Principles of franchising

Experienced businessmen know: starting a business from scratch is extremely difficult. Even if you have an idea, budget and advertising, selling something “without a story” is much more difficult than selling a Gucci scarf and Versace glasses. It takes years to develop a business; In the first months you have to make financial investments without hope of getting a return. But you have to live on something and feed your family. And then franchising comes to the aid of a novice businessman.

This is interesting! The word Franchise originally appeared in French, but it was the inhabitants of English-speaking countries who gave it the economic meaning that it has today. Therefore, the English pronunciation of the word was fixed.

When visiting a Burger club restaurant, putting on Sali shoes, buying a can of Coca-Cola, a person does not suspect that he is a franchisee. The famous Isaac Singer is considered the first franchisor. By transferring to other dealers the rights to sell and repair his sewing machines, he spread the prototype of modern franchising throughout the United States.

What are the differences between franchising and franchising?

Pros and cons of franchising

The secret to the popularity of this type of entrepreneurship is simple: it is beneficial for both parties. The franchisor benefits from acquiring reliable business partners, control over his brand and receiving additional income. The benefit of the franchisee is based on receiving clear and understandable instructions for opening a business and guarantees that the product will be purchased and the money spent will be returned.

Disadvantages of the system:

1. dependence of the franchisee on the franchisor - if the latter is dishonest, the entrepreneur will spend money and will not receive the expected effect in return
2. inequality of the deal - although the nuances of cooperation are negotiated jointly by both parties, experienced lawyers of the selling party insert clauses into the contract that provide them with benefits in any case.
3. the difficulty of conducting civilized franchising in Russian conditions - the imbalance between the standard of living in large cities and regions can lead to the fact that an idea that went off with a bang in Moscow will not arouse any enthusiasm in Saratov or the Far East.

An additional risk of franchising “in Russian” is minimal participation in the transaction on the part of the state. In Western countries, franchisees receive benefits from banks and government guarantees; franchising gives them advantages. In Russia, this is a business at your own peril and risk; banks refuse preferential loans; the success of the business depends on the enterprise and efforts of the franchisee, the honesty and conscientiousness of the franchisor.

The disadvantages of the system lead to the following question: how to reduce the threat of losing money to a minimum, find a good franchisor, and buy a profitable franchise.

How to correctly draw up a franchise agreement

Purchasing rights from famous brands is a win-win option, meaning super income and minimal risk. But the starting capital for purchasing such a franchise is measured in millions of rubles. A novice businessman cannot afford this option - he is looking for a franchisor with favorable conditions for beginners. Unscrupulous companies take advantage of this and seek to sell air under the guise of a franchise.

What to pay attention to when drawing up a contract

1. Only legal entities can be the subjects of the agreement.
2. It is useful to ask Rospatent whether the franchisor legally owns what he sells and ask to present the relevant documents.
3. As in any agreement, the rights and obligations of the parties, the size of the lump-sum (initial) contribution and the percentage of deductions from profits (if any) should be clearly and unambiguously stated.
4. Be sure to indicate the scope of the rights being transferred: what exactly the buyer pays for. Here it is important to stipulate the time of use of someone else’s trademark and the issue of competitors working in their territory.
5. It is advisable to provide for the actions of the parties in the event of termination of the contract. Beginning businessmen often neglect this point - and make a mistake. A real businessman must foresee everything.

Important! The general rule is that all issues of future cooperation are clarified in advance and documented.

How to choose the best franchise

Although there is no official gradation, franchisors are divided into those who are interested in their reputation and close cooperation, and those who want to sell more franchises and wash their hands of it. The first ones put forward detailed conditions and present a list of restrictions. The fact that the brand owner cares how things go for his clients is a plus. But strict control is sometimes not to the liking of a free businessman. If the terms of the agreement are not met, the franchisor will terminate the relationship and will not return the money.

But franchisors of the first category provide budding entrepreneurs with really working tools. By following their step-by-step instructions, even an inexperienced franchisee will get things going and make a legitimate (and most importantly, quick) profit. Such patrons not only give general recommendations - they offer to help with equipment, materials, teach, tell all the intricacies of the chosen direction literally on their fingers. They are interested in the success of the subsidiary and the latter's profit.

Hello, dear readers! Welcome to the blog!

What does the term franchise mean can be found in Wikipedia, but here I will explain what a franchise is in simple words and with examples. In addition, if you have already begun to think about building your own business, from the article you will find out what is more profitable, starting your business from scratch or opening a franchise business?

From the article you will learn:

3. How much does a franchise cost?

4. Types of franchising.

5. The advantage of opening a franchise business.

9. Summary.

1. What is a franchise in simple words?

In simple words, we can say that a franchise is the rental of developed, proven, streamlined, working business processes.

If you are going to buy a franchise of a well-known brand (become a franchisee), then along with the right to use it, you receive all the instructions on producing the product and running a business, namely: how to hire staff, how to train them, how to work with clients, and so on, everything down to the smallest detail.

You don't need to invent anything, because there is already a ready-made, proven business model that generates income. Naturally, you will need to pay part of the profit to the franchisor (the owner of this franchise) for the fact that you use the business model developed and tested by him and are guaranteed to make a profit.

The franchisee is the buyer of the franchise. The franchisor is the owner and seller of the franchise.

Now, using an example, it will immediately become clear what we are talking about.

2. The most striking example of a franchise is McDonald's.

Do you know that McDonald's restaurants opened in your city, and in almost all cities of the world, operate as franchises?

It is often said that McDonald's is the founder of franchising. Let's take a short excursion into history, or more precisely: into the success story of McDonald's.

The worldwide popularity of the fast food chain was brought not by the creators of the McDonald's restaurant (the McDonald brothers), but by businessman Ray Kroc, who was not very successful at that time. He sold small equipment for making milkshakes to restaurants.

When he entered a roadside restaurant, he was amazed at how quickly people were served and how popular the quick service system was. He got an idea sell franchises of such services under the McDonald's brand all over America. And he addressed this proposal to the brothers.

Ray agreed with the brothers to rent a system for building their business from them in order to subsequently sell it to other businessmen. He paid them money to give him all the hamburger recipes, tell him what equipment they use, how they increase the speed of service, how they train staff and many other secrets with which they built a successful business.

Ray Kroc needed $15,000 and was turned down for a loan, so he had to take a chance and mortgage his house. He was then 52 years old. He wasn't wrong.

Ray Kroc is now a billionaire. There are more than 30,000 McDonald's restaurants in the world.

3. How much does a franchise cost?

What determines the cost of a franchise? From many factors, but mainly:

• from brand awareness;
• from the territory of distribution of the franchise;
• from the term of the contract.

So, how much money will it take to buy a franchise? There are 2 ways to pay the franchise: lump sum and royalties.

When purchasing a franchise, you need to make a lump sum contribution.

A lump sum payment is a one-time payment for the right to use a product, brand, or business model.

There is also a monthly payment - a percentage of turnover. It is not always established; there are franchises with only a one-time payment (lump sum).

Royalty is a monthly payment, it’s like a rental payment for the opportunity to use a well-known brand (usually 5-10% of turnover).

There is another important and large part of the cost when buying a franchise - this is the initial capital.

Initial capital is the amount of investment in a business. From the franchisor you will receive information about how much money you will need to open a point of sale.

Let's consider the components of the cost of a franchise using the example of McDonald's.

How much does a McDonald's franchise cost?

• Franchise cost: $45 thousand;
• Royalty (monthly payments): from 12% of turnover;
• Initial capital: from $1 million;
• Contract term: 20 years (renewable).

4. Types of franchising.

Product franchising– this is the right to sell goods of a certain brand. 90% of stores in shopping centers such as H&M, Zara, Baldinini and others are opened under such franchises in the world.

Manufacturing franchising is the right to produce goods of a certain brand. Vivid examples are Pepsi, Coca-Cola and others.

Business franchising– this is the right to open a business in the franchisor’s network. Common in the catering, services, and hotel industries. Examples: McDonald's, Hilton and others.

5. Advantages of starting a franchise business.

According to official data, in the vast majority of countries in the world, franchising is the most popular type of business. Let's figure out why. The answer is simple. You need to look for it in the statistics of the life cycle of opening enterprises. You've most likely heard of this sad statistic.

85% of new businesses go bankrupt within the first 5 years of their existence.

The same figure for franchised businesses is only 15%.

Advantages of starting a franchise business

• Brand recognition. Franchises, as a rule, sell well-known, well-promoted, trusted brands.
• Fast business promotion. Good revenue will begin to flow literally from the next day the business opens.
• Minimum advertising costs. Firstly, the brand itself speaks for itself and does not require advertising. Secondly, the franchisor provides promotional materials and proven advertising methods.
• Support and training. You may not have business experience. The franchisor is interested in quickly training you with training programs and courses for effective business management. Reduced business risk. Of course, the possibility of failure exists, but it is minimized, since a proven, effective business technology is used.
• In fairness, it is necessary to say about some of the disadvantages of working as a franchise. But they, in my opinion, are insignificant compared to the advantages.

Disadvantages of starting a franchise business

• The high cost of some franchises.
• Control by the franchisor.
• Limiting the franchisee's creativity.

6. Top 50 most profitable franchises in the world.

For many years, it has been included in the top 10 profitable franchises in the world. McDonald's, Subway, KFC and other fast food franchises.

KFC. Number of purchased franchises: more than 14 thousand. Opening cost: $1.3 million - $2.5 million.

McDonald's. Number of franchises purchased: more than 30 thousand. Opening cost: $1.0 million - $2.3 million.

Number of franchises purchased: more than 42 thousand Opening cost: $116,600-$263,200

If you are interested in finding out the full list of the Top 50 most profitable franchises in the world, you can find it in this article The top 50 franchises in the world.

7. 25 most profitable franchises in Russia - 2016 according to Forbes.

• ratio of start-up investments and profits;
• profit to revenue ratio;
• average annual revenue.

You can find a complete list of the 25 most profitable franchises in Russia on the publication’s website Forbes .

8. How to choose the right franchise?

When choosing a franchise, the first thing you need to consider is that you like the business. It is also extremely important to consider the following criteria for choosing a franchise.

Duration of existence of the company. The company's condition is more stable the longer it exists on the market.

The pace of company expansion. The more stores it opens per year, the more successful it is.

Franchise cost. It is important to find a balance between the cost of purchasing a franchise and its reliability.

Franchisor support. Availability of marketing and legal support is the most important criterion.

9. Summary.

Dear readers, you have learned what a franchise is in simple words. With all my heart I wish you to quickly move from theory to practice and start running your own business, which can be started in the following ways:

• start your business from scratch (come up with a product, service, business model)
• buy a ready-made company
• start a franchise business.

But if you don’t yet have the start-up capital to purchase a franchise, you can start with an online business (creating your own blog or website), which requires virtually no investment. You can create and start your website in literally a few days using free instructions, including video instructions, which I have prepared for you in a series of articles on my blog. Here is the link: .

See you soon on the blog pages!
I wish everyone inspiration and confidence in the implementation of their projects!

I think you are already tired of this business topic and therefore I suggest you take a break and watch this rare video, how hippos saved an antelope from certain death.