4 Essential Things to Know About Franchising Understand the basics of franchising by knowing these four things.
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Anyone with internet access and a mild case of curiosity can look up the definition of franchising. In a strictly technical sense, the International Franchise Association (IFA) describes franchising as "a method of distributing products or services involving a franchisor, who establishes the brand's trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system." Technically, the contract binding the two parties is the "franchise," but that term more commonly refers to the actual business that the franchisee operates. The practice of creating and distributing the brand and franchise system is most often referred to as "franchising."
To gain a better understanding of franchising, here are four essential things to know:
1. Franchising is a two-way street
The beauty of franchising is the mutually beneficial arrangement between franchisor and franchisee. And once they team up, the relationship becomes a two-way street. The franchisee pays an initial fee and agrees to ongoing royalty payments in exchange for the right to use the name, likeness, trademark and operating systems of the franchisor's brand. In turn, the franchisor agrees to uphold, support, train and nurture the franchisees in their system, creating one big happy family. Franchisor and franchisee are dependent upon one another for success.
Related: How Franchisees and Franchisors Can Master Their Relationship
2. Franchisee support is deeper than you think
The franchise brand has a vested interest in seeing its franchisees not only survive but thrive. The primary way it ensures this can be demonstrated in the level of systems and support it provides, because franchisors wouldn't be successful without investing in the success of their franchisee family. The depth of their support is provided in the systems, tools and ongoing guidance they have to offer. All franchisors provide operations manuals, initial training and degrees of ongoing support. But many also extend their support in the form of site selection assistance, discounted vendor relationships, marketing, co-op advertising, social media, field support, onsite inspection visits and even 24/7 call center assistance. Some franchisors even assign a dedicated franchise business representative to oversee new franchisees.
3. Franchising is all about proven business models
Just about everyone has eaten a Big Mac from McDonald's before. And if you've ever enjoyed this same meal more than once, you've experienced the "secret sauce" behind its attraction. The process of replicating a product or service to ensure a consistent customer experience is the centerpiece of a franchisor's proven business model. It doesn't matter if you're talking about cheeseburgers or a residential window washing service. If a franchisee can diligently follow the procedural guidelines laid out in the brand's operations manual, they're actively engaging in the brand's proven business model — a veritable roadmap for success.
Related: 5 Franchises That Saw Explosive Growth in 2021
4. An advantageous route to business ownership
For those with an entrepreneurial mindset and a desire to become their own boss, it's widely accepted that there are three paths to take. You can start up a business of your own, buy an existing business from its current owner or explore the contractual relationship of franchising. The latter choice has its advantages, as franchisees never have to reinvent the wheel to get the business of their dreams up and running. Many new franchisees have described their budding operation as a "business in a box," because of the all-inclusive tools, systems and operating procedures built into the business model. In the quest to become your own boss, franchising offers a head start and a leg up for its new business owners.
According to some of the most recent statistics, franchising is becoming more and more of a thriving industry. With over 750,000 units in the U.S., franchising employs more than eight million people and accounts for roughly three percent of the country's GDP. Franchising is much more than a simple definition. And the best way to get acquainted is to do some research and begin looking at business concepts, the starting point of what the franchise industry refers to as the "investigative process." Regardless of your previous career, your level of experience or your passions, with thousands of different franchise concepts on the market, there's certain to be a perfect business ownership opportunity out there for everyone.
Related: Is Business Ownership Right for Me? 4 Questions to Consider Before Taking the Plunge.
