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Franchise Businesses > About Franchising > What is Franchising?

What is Franchising?

Franchising is a method of running a business under an already established trademark, such as part of a chain of stores or as an agent for an organisation. The owner of the rights to the trademark is known as the Franchisor and the party wishing to use the trademark is the Franchisee. To operate as a franchise the Franchisee is obligated to pay fees and royalties in exchange for the rights to operate a business using the trademark provided by the Franchisor. The Franchisor is also required to provide support to the Franchisor such as training, supplying materials and equipment and offering business advice. There are 2 different methods of working with a franchise ; Business Format Franchising and Product & Trade Name Franchising .

Business Format Franchising

Business format franchising offers to most services and advice to the Franchisee. This is seen as a complete package for starting up a business, as the Franchisor will provide use of trademarks and images, business systems and help with location selection, layout, design and equipment, advertising and marketing, product supply and more. Staff training will also be provided along with continuing support. The franchise fee and royalties paid to the Franchisor go towards research and development of new products and systems that will be available to the entire organisation, including franchises. This style of franchising is popular in areas that involve unique products or services, such as food outlets and restaurants, salons etc.

Product & Trade Name Franchising

Product and trade name franchising offers a different type of franchise that has less involvement from the Franchisor. This style of Franchising includes the rights of the Franchisee to use trademarks and provide goods or services that only licensed locations may do. These include take away foods and drinks or specialised services. In return for this the Franchisor supplies the goods and equipment along with displays or vending machines. In this case the Franchisor may also help to secure locations for vending and advertisement.

Benefits of Franchising

Both the Franchisor and the Franchisee gain from the opportunities that are presented with franchises. For the Franchisor a franchise offers great marketing and brand awareness potential, as it introduces the brand to a new area without having to manage the location themselves. The organisation will also make a profit from any franchise that is operated on their behalf from royalty fees, initial franchise fees and the potential ongoing purchase of supplies. For the Franchisee, setting up a franchise of an existing business presents less risks than creating a new business. By having an established brand and help with many aspects of running a business, such as finance and marketing, from the Franchisor there is a greater chance of developing a successful business for both parties. Running a Franchise, like any business, does of course require dedication, business sense and drive and ambition.
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