Franchising 101: Fundamentals of Franchising

America has been a world leader in the franchise industry since the 1930s. Owing to the rise of the fast-food industry, numerous restaurant chains began opening some of the biggest franchises today, including McDonald’s, Denny’s and Jack in the Box.

Currently, franchises account for a great percentage of American businesses. According to a 2016 report, the GDP of the franchise sector is projected to grow to $552 billion, and franchise businesses will see a 3.1 growth in jobs. All in all, franchise businesses have grown at rates that exceed non-franchise businesses.

So, what is franchising? And given its role in a flourishing economy, should you venture into it?

What is Franchising?

Two factors work together in a franchise business: Franchisor and Franchisee. A franchisor is someone who owns a company and the rights to its trademark, products and services. A franchisee is an individual permitted by the franchisor to run the franchise business independently for an agreed-upon fee.

The most common example is a fast food business owner (franchisor) opening franchise branches of their restaurant in various states. For every franchise, there are branch managers (franchisee) who manage the operations for one restaurant in one state. This type of franchising is the most common form which is known as “business format franchising”.

Other Types of Franchising

There are other kinds of franchises that differ based on the relationship between the franchisor and franchisee. One type involves a manufacturer and a retailer. The retailer acts as the franchisee that sells the manufacturer’s product directly to the public. An example is a car part shop selling engine components made by top car manufacturing brands.

Another type of franchise that deals with a manufacturer is a wholesaler that distributes a manufacturer’s product under a licensed agreement. This is usually the type of franchising done in the bottling and canning arrangements for a soda company. A wholesaler can also deal with retailers that purchase their products for retail sale. For instance, hardware and automotive stores acting as wholesalers that sells their products to retailers.

Getting into a Franchise Business

So, why do people choose to venture into a franchise? One of the most attractive aspects of buying a franchise is the existing business formula. This model would have the products, services and marketing strategies readily available for the franchisee to apply.

Some franchisors also offer training and financial planning support to the franchisee. These training programs are intended to give new franchise owners a better understanding of the industry of the business franchise itself, as well as the processes of the franchisor’s company.

There’s also the benefit of quality and consistency. While the franchisee must strictly manage the franchise business based on the procedures of the franchisor, the franchisee gets the assurance of consistent product or service quality.

Now let’s talk about costs

If you plan to set up a franchise business, you need to prepare for the start-up costs and royalty costs. For instance, Mcdonald’s requires franchisees to have a start-up asset of at least $750,000. While franchising a well-established company isn’t an inexpensive endeavor, it has one clear advantage: the reputation of the business. Its existing customer base already sets you up for profitability in terms of foot traffic and inquiries.

An existing business formula, guaranteed quality and consistency, and a high potential for return on investment: for many entrepreneurs, these three key factors make franchising a potentially rewarding venture.

Who is Fully Promoted Franchise?

Fully Promoted is a promotional marketing franchise company that allows entrepreneurs – seasoned and new – open  promotional product franchises. The company conducts extensive training and support for people venturing into the franchising industry for the first time. Their training program ensures that the franchise owners gain the business, marketing, and technical knowledge needed to run a franchise successfully.

For more information, contact the team at 877-959-8087.