business model

In a franchise business model, the franchisee legally acquires the right to use the franchisor’s trade name and established operating systems. The parent company earns a fee from this agreement and, in exchange, trains the franchisee to market their branded products or services. 

Franchise opportunities entitle you to robust training, operational assistance during the term of the contract, and trademark rights. American entrepreneurs favor this business model; hence, the growing number of franchises contributing to the country’s booming economy.

The different types of franchise business models are enumerated here:

  • Business format franchise wherein the franchisee, besides operating under the franchisor’s brand name, also pay to access the latter’s product distribution model.  
  • Product distribution franchise wherein the franchisee exclusively sells the products manufactured by the franchisor after legally obtaining rights. 
  • Manufacturing franchise wherein the franchisee buys the rights to manufacture and sell the franchisor’s products under the original brand.

Franchise contracts specify a validity period, which can even extend to 20 years. When you fail to comply with the terms of the agreement, your franchise’s right to operate can be taken away. Only the franchisor can decide to renew a contract and choose to either retain the original terms and conditions or amend them.

Before exploring franchise opportunities, you must understand its basics, which is why the corresponding business model is simply explained below:

The Franchisor’s Role

Owners of reputed brands are always looking for opportunities to expand their business without significantly increasing their investment and involvement. Franchisors increase their revenue earning sources and streamline how franchisees conduct business by exercising the following controls:

1. Site Approval

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After conducting extensive site studies, a site that has the potential to attract customers is approved. The franchisee’s choice of the site may not gain approval if it does not meet the existing brand’s uniform outlet look.

2. Imposing Restrictions

The hours of work, advertising campaigns, accounting procedures, and other operational methods followed by the franchisee often need the franchisor’s approval. Franchisees are not at liberty to bring about pricing and quality changes to their product and service offerings with the franchisor’s restrictions.

3. Defining Sales Area

By granting you an exclusive sales territory, the franchisor can limit your business to that defined location. Other franchises that approach the same franchisor may not be granted permission to serve customers in your specified region.

The Franchisee’s Role

Owning a franchise is accompanied by franchisor controls, contractual obligations, and defined costs. At the same time, you receive varying levels of support from the franchisor, like location assistance, operational guidance, and comprehensive training. Besides purchasing the franchisor’s business property rights, be prepared to incur some of the expenses listed here:

  • Significant costs to build or rent, and equip your retail outlet
  • Purchasing operating licenses and insurance
  • Paying a percentage of the franchisee’s gross sales or average revenue as royalty to the franchisor
  • Marketing fee to cover advertising support provided by the franchisor
  • Cost of administrative services offered by the franchisor

Approach agencies where you can find the perfect match as a prospective franchisee. By sharing critical data, these specialists lead you to opportunities where you stand to benefit.

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