When you think of a Franchise which one comes to mind? Probably names like McDonald’s, Subway or Carrefour as they are a few of the most successful in the word. What is a franchise really? Where do they come from? What challenges should be overcome to reach the level of the leading franchise?
First, let’s start by defining the term Franchise:
A franchise is a contract through which a company grants rights and delivers obligations to another company or person, so it obtains profits through the exploitation of the brand, product or service.
Who is involved in this contract?
The franchisor and the Franchisee. The first one is the owner of the rights and the license, while the other obtains the franchise and will be named a franchisee.
What do they do?
The franchisor issues the license. This allows the brand to continue growing while the franchisor also receives commissions or “royalties from sales made during each month of the franchise.
On the other hand, the franchisee acquires a product backed by a brand that is already consolidated in the market. It is important to know that the amount of money the franchisee gives to acquire the license is called “Canon”.
What is the origin of the franchises?
Many historians argue that the official start of Franchises began with The Singer Sewing Machine Company in the 1880s. Soon came Coca Cola, General Motors and Hertz Rent a Car. Yet, the real boom in franchising in the United States came after World War II, when the soldiers returned home.
Although many of them did not have commercial knowledge or professional training, they had capital, They started working with franchises, this guaranteed them the chance to get advice from more knowledgeable individuals.
Advantages and Disadvantages
Franchising seems to be an ideal business model to undertake while playing it safe. It does have its advantages, yet it has a high range of requirements and drawbacks.
One advantage to mention is the minimization of risks involved in starting a new business unknown to the market. This is undoubtedly is a tedious and difficult process. The franchisor should support you commercially and technically. You will also see better distribution of products and removal of pressure from large multinational companies.
Another huge advantage (a very interesting one for entrepreneurs) is Mentoring. You will be in touch with very prestigious, intelligent people. These Mentors will be able to guide you through the process and eliminate any problems before they arise.
Among the disadvantages comes the extremely high prices of franchises. They are not cheap. Secondly, we point out the shared benefits. There are many restrictions in place that a franchisee must adhere to. This is not your company and there are policies and procedures to follow. Currently, the United States is known as the Cradle of Franchises Worldwide. It maintains itself as a leader in the World Market with 883,000 established franchises in different economic sectors, generating 10% of the jobs in this nation.
According to the ranking of the 500 Best Franchises made at www.entrepreneur.com, the most profitable franchises for this 2017 are:
- Eleven
- McDonald’s
- Dunkin Donuts
- The UPS Store
- Jimmy John’s Gourmet Sandwiches
- Dairy Queen
- Wingstop Restaurants Inc.
- Sport Clips
- RE / MAX LLC
Worldwide franchises represent an important part of the economy, with more than 3,000,000 franchise units and 20,000 thousand registered franchise companies around the world.
In our next article, we will share the story of the largest franchises in history and their business model.
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