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The Basics of the Franchise Business Model

The Basics of the Franchise Business Model

The success of the franchises business model is well established. McDonald's is probably the best known example. After a little over half a century there are thousands of McDonald's in dozens of countries across the globe.

The basics of the franchise system are easy to understand. The franchisor grants the franchisee the license to use a particular brand name (such as Subway's). They provide marketing support and business guidance. The franchisee agreements to abide by certain guidelines (such as use a particular supplier for food) and pay a certain percentage of revenue as a franchise fee. When it works, both partners are happy. The franchisee gets a business with less risk than starting an independent store. The franchisor gets the franchise fee every year and expands without having to put up additional capital of its own.

Some people advocate starting an independent store because it has more potential for being profitable. This can be true in many circumstances. The franchise fee percentage is usually large and can be a heavy burden in the low-margin retail business. Plus there is far more freedom in running an independent business. Subway's dictates what products franchisees can sell. But owners of their own sandwich shop can sell whatever they please.

To others though a franchise provides much-needed guidance. Running a business for the first time can be overwhelming for many first-time entrepreneurs. The structure plus the brand provided by a franchise for some is well worth the fees and restrictions that come with it.

A franchise can be an excellent business opportunity. But be aware of the advantages and disadvantages. Be sure to do further research before proceeding.

Source by Alex Villanueva

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