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Starting your own company is a complex and expensive process. You need to build a business model from scratch, take into account hundreds of little things and constantly refine it in the process of use. Given the strong competition, many young companies fail in the first year of life, and three years later, according to various estimates, they remain from 5 to 10%. Therefore, businessmen often want to protect themselves from risks and purchase a ready-made model along with a trademark in order to avoid initial problems, lowering the threshold for entering the business world. Franchising helps with this. What is it and what are the most interesting franchises?
International Marketing Professor Philip Kotler highlights the following signs of franchising:
Despite the fact that the franchising system seems to many to be a type of modern business, the beginning was laid back in 1851 by the Singer Sewing Machine Company, which was engaged in the sale and service of Singer sewing machines. This firm entered into a written franchise transfer agreement, which stated that the franchisee would receive the right to sell and repair sewing machines in a specific area of the United States.
Cons of purchasing a franchise:
Pros of buying a franchise:
To purchase a franchise, you will need to make a one-time lump-sum payment, have a certain amount of capital to start a business, and deduct a portion of the proceeds to the franchisor.
Collected below are some notable franchises. Monetary values are approximate because they change over time and also differ from country to country.
The lump-sum fee varies for different countries and amounts to 7.5-15 thousand dollars. Moreover, at the opening of the second and third restaurants, substantial discounts are offered one and a half to two times.
You also need to have about 70-100 thousand dollars of capital, which includes the following expenses of the entrepreneur:
In turn, Subway provides a support system. She advises the entrepreneur at all stages, trains staff, provides suppliers, and so on.
Basically, this company was not a franchise because it wanted complete control over its brand. However, in recent years, its creators began to think about franchising with strict control over each coffee shop. Applications are considered individually.
The estimated cost of the franchise is 2-2.5 thousand dollars for the arrangement of one square meter of the establishment. On average, the amount is about 150-170 thousand dollars. The cost covers the purchase of equipment, construction work, the purchase of necessary goods. The average payback period is over two years.
As mentioned, the owners of the coffee chain set very tough conditions for investors and entrepreneurs. For example, it is important that the entrance doors face south or east, but not north - so that the sun does not shine in the face of the visitors.
There are favorable terms of cooperation for the franchisee:
Terms may differ from country to country and are considered on a case-by-case basis. For example, a lump-sum payment in certain circumstances does not cost a penny (and can reach 40 thousand dollars). At the same time, you must have about 100 thousand dollars to start a business. A big plus is the absence of monthly fees (royalties).
Important conditions are meeting the owners, filling out a questionnaire, interview and presentation of the business plan. Then training is provided for 3-6 months, after which the restaurant opens.
A lump-sum fee of about 15 thousand dollars and a marketing fee of 4%. It also requires about $ 20,000 in capital.
The average payback period is from 9 months to 1.5 years.
This franchise is very profitable due to the low threshold for entering the business in the form of investments. In addition, you can open your own point in a shopping center if you managed to get an area of five square meters or more. The staff usually consists of 10 to 20 people.
The business world presents a huge number of interesting franchises. It all depends on your starting capital, ability to negotiate, and also on whether you will be able to find suitable partners for yourself. Before buying a franchise, be sure to weigh the pros and cons, because sometimes things can seem too smooth, but in fact, many unpleasant points become clear. Ideally, look for brands that have already established themselves in your country - watch and be interested in the payback period and the challenges that may await you. We wish you good luck!
Concept and history
Franchising is a type of relationship between market entities, when one party (franchisor) transfers to the other party (franchisee) for a certain fee (royalty) the right to its business, using the developed business model of its conduct. Simply put, franchising is the lease of a trademark.International Marketing Professor Philip Kotler highlights the following signs of franchising:
- The franchisee pays an initial fee for the right to obtain a lease of a trademark and a business scheme.
- The franchisor receives royalties for the use of his trademark.
- The franchisor provides the franchisee with a business management system.
Despite the fact that the franchising system seems to many to be a type of modern business, the beginning was laid back in 1851 by the Singer Sewing Machine Company, which was engaged in the sale and service of Singer sewing machines. This firm entered into a written franchise transfer agreement, which stated that the franchisee would receive the right to sell and repair sewing machines in a specific area of the United States.
Pros and Cons of Buying a Franchise
Despite the fact that buying a franchise has many advantages, there are also disadvantages to it. Let's start with them.Cons of purchasing a franchise:
- Often franchisees are forced to buy raw materials and products from suppliers imposed on them. This can lead to the purchase of such products at inflated prices.
- Franchisees are forced to follow the restrictions and rules of the franchisor, even if in some moments this may not bring the maximum benefit.
- Sometimes franchisees are obligated to pay for centralized advertising and marketing companies and have little opportunity to influence centralized marketing and advertising issues.
- For franchisees, there may be quite strict restrictions on exiting the business.
Pros of buying a franchise:
- Using a proven business model. This model has already proven its effectiveness in the market of some countries and is viable in all conditions. You do not need to spend additional funds to develop your system.
- The ability to reduce risks. The franchisee becomes part of the family, because the franchisor does not leave partners alone with their problems and risks.
- Successful market entry. If the franchisor has been on the market for a long time, then its products and services are in demand in many countries. A lot is done by the brand itself, about which future customers have long heard from the media or films, but have not yet had the opportunity to use it. That is, the franchisee already has loyal customers by the time the business is launched.
- Minimum advertising and marketing costs. Of course, money for local advertising will be required, but again, the brand itself is a good advertisement.
- Access to the knowledge base of the franchisor. The franchisee receives instructions on how to effectively use the business model.
To purchase a franchise, you will need to make a one-time lump-sum payment, have a certain amount of capital to start a business, and deduct a portion of the proceeds to the franchisor.
Collected below are some notable franchises. Monetary values are approximate because they change over time and also differ from country to country.
The most interesting franchises
Subway
This is a fast food restaurant chain that operates on a franchise basis. The firm was founded in 1965 by Fred DeLuca.The lump-sum fee varies for different countries and amounts to 7.5-15 thousand dollars. Moreover, at the opening of the second and third restaurants, substantial discounts are offered one and a half to two times.
You also need to have about 70-100 thousand dollars of capital, which includes the following expenses of the entrepreneur:
- for marketing and advertising
- for insurance
- for registration of a franchise agreement
- for equipment of fire alarm and security systems
- for the purchase of products and supplies
- for the purchase and rental of real estate
- other expenses
In turn, Subway provides a support system. She advises the entrepreneur at all stages, trains staff, provides suppliers, and so on.
Starbucks
Starbucks is an American coffee company and eponymous coffee chain. As of December 2015, the chain covered 22.5 thousand coffee shops in 67 countries.Basically, this company was not a franchise because it wanted complete control over its brand. However, in recent years, its creators began to think about franchising with strict control over each coffee shop. Applications are considered individually.
The estimated cost of the franchise is 2-2.5 thousand dollars for the arrangement of one square meter of the establishment. On average, the amount is about 150-170 thousand dollars. The cost covers the purchase of equipment, construction work, the purchase of necessary goods. The average payback period is over two years.
As mentioned, the owners of the coffee chain set very tough conditions for investors and entrepreneurs. For example, it is important that the entrance doors face south or east, but not north - so that the sun does not shine in the face of the visitors.
You are
This is a chain of clothing stores. The company was founded in 1975, the main office is located in the city of A Coruña in Spain.There are favorable terms of cooperation for the franchisee:
- Free consultations on the sale of goods
- Markups on goods from 100 to 600 percent
- Assistance in the selection and supply of commercial equipment
- Using a popular brand
Pizza Hut
Pizza Hut is a restaurant chain with more than 15 thousand locations in more than 90 countries around the world. Founded in 1958 by the Carney brothers in Kansas.Terms may differ from country to country and are considered on a case-by-case basis. For example, a lump-sum payment in certain circumstances does not cost a penny (and can reach 40 thousand dollars). At the same time, you must have about 100 thousand dollars to start a business. A big plus is the absence of monthly fees (royalties).
Important conditions are meeting the owners, filling out a questionnaire, interview and presentation of the business plan. Then training is provided for 3-6 months, after which the restaurant opens.
Baskin-Robbins
It is a chain of ice cream shops founded in 1945 in Massachusetts. There are about 7.5 thousand franchises sold by this company in the world.A lump-sum fee of about 15 thousand dollars and a marketing fee of 4%. It also requires about $ 20,000 in capital.
The average payback period is from 9 months to 1.5 years.
This franchise is very profitable due to the low threshold for entering the business in the form of investments. In addition, you can open your own point in a shopping center if you managed to get an area of five square meters or more. The staff usually consists of 10 to 20 people.
The business world presents a huge number of interesting franchises. It all depends on your starting capital, ability to negotiate, and also on whether you will be able to find suitable partners for yourself. Before buying a franchise, be sure to weigh the pros and cons, because sometimes things can seem too smooth, but in fact, many unpleasant points become clear. Ideally, look for brands that have already established themselves in your country - watch and be interested in the payback period and the challenges that may await you. We wish you good luck!