Know What Is a Franchise, Understanding Franchise, and Examples of Franchise Business

Franchise Business

Franchising or franchising is one business model that many entrepreneurs are interested in, be it beginner business people or experienced businessmen.

This franchise business concept allows someone who has capital but is inexperienced in business to have a profitable business.

Definition of a franchise (franchise)

The definition of franchise or franchise is an engagement or cooperation in which one of the parties is given the right to utilize and use Intellectual Property Rights (IPR) or a meeting of business characteristics owned by another party for a reward based on conditions set by the other party. to provide or sell goods and services.

So simply put, the definition of a franchise is a form of business cooperation between the franchisor and another party who is willing to pay for a license to use the brand, product, and operating system according to the agreement between the two parties.

Term In Franchise

In the franchise business, several terms are often used, including:

1. Franchisor

The franchisor is a franchise owner, either individually or in the form of a business entity that gives rights to other parties to use and utilize Intellectual Property Rights related to their business.

2. Franchisee

Franchisees are franchisees who are authorized to use the intellectual property rights of a brand.

3. Franchise Fee

The franchise fee is the initial fee that must be paid by the franchisee before starting a business. These costs include; license fees for the use of brand names, and costs for using operational systems, costs for site surveys, outlet design, preparation of business plans, initial stock, training, supervision, and business launching.

4. Royalty Fee

The royalty fee is a fee that must be paid by the franchisee after running the business. Generally in the form of a percentage of the income received by the franchisee each month, excluding taxes.

Pros and Cons of Franchise Business

Every business model has advantages and disadvantages, as well as a franchise business. The following are some of the advantages and disadvantages of running a franchise business:

1. Advantages of Franchising Business

  • The brand is well established and has a customer base. This is the biggest advantage of buying a franchise that is already popular and has loyal customers.
  • Marketing Support. Franchisees often get support from the franchisor in terms of marketing.
  • Leading Supplier. The franchisor generally works with the supplier for all the materials the franchisor needs.
  • Business support. There's a saying in franchising: "You run the business for yourself, but not alone" because you have a support network.
  • Practice. Some of the better (and more expensive) franchise operations offer management and technical training.
  • Finance Assistant. Some franchisors provide loans and other assistance to help franchisees.
  • Access to the Ownership Method. There is no need to reinvent the wheel as franchisees get access to all trade secrets.
  • Sustainable Research and Development, New Products. Franchisors can continue to improve their operations while the franchisor spends time and money on developing new products.
  • You are the boss. Like owning any other business, you are in control of your business.
  • Tends to be minimal risk. Starting a franchise from an established brand generally has less risk than starting a business from scratch.

2. Disadvantages of Franchising Business

  • Early Payment (Franchise Fee and Initial Fee). Some of the larger franchises will have huge initial costs, often exceeding the costs of starting your own business.
  • Royalty Payments. As long as you are the franchisee, you will have to pay the franchisor a portion of the gross monthly income, thereby reducing potential profits.
  • Marketing / Advertising Costs. To get better marketing support from the franchisor, it is not uncommon for the franchisee to pay advertising fees, according to the contract.
  • Limited Creativity / Flexibility. Most franchise contracts have clear standards, which allow little or no change or addition to the brand, hindering the creativity of the franchisor. You have to use their system, follow their rules.
  • Sole Supplier. Some franchise contracts stipulate that the franchisor must purchase supplies only from a list of approved suppliers, possibly at a higher cost.
  • Depends on the Franchisor's Success. The reputation of your franchise is only as good as that of the franchisor, so any difficulties the franchisor faces will have an immediate impact on you.
  • Have a Risk. Even though it has great potential, basically there will always be risks in starting a franchise business.

Tips for Choosing a Franchise Business

Keep in mind that apart from buying the franchise, the franchise buyer must also think about employee salaries and also some other preparations. So, we have to prepare ourselves financially before buying a franchise.

The following are some tips for choosing a franchise business to run:

1. Choose a franchise that is easy to run

We shouldn't choose a franchise that can take up time and think. Therefore, make sure that the franchise business that we will run can be done easily and practically.

Besides, choose a location that is easy to reach and the environment is also safe. This is very important because the ease of access and security of your business location will greatly affect the number of customers who come to your place.

2. Choose a franchise that has many customers

Prioritize running a franchise that has a large number of consumers and can reach all age categories. Choosing the type of franchise with fewer customers has a greater risk of loss. One example of a type of franchise that has a lot of customers is a food and beverage franchise.

3. Choose a franchise whose product prices are affordable

In addition to the type of franchise that has many customers, the price factor also greatly determines the success of a franchise business. Don't choose a franchise that charges a high price for its products and is not by the economic conditions of the people around your business.

4. Choose a franchise that provides good service

Service and product warranty are very important to maintain customer trust. Therefore, choose a franchise that provides service and also guarantees quality assurance on its products to increase the trust of your customers, of course, this will greatly help in developing your franchise business in a better direction.

Conclusion

In general, franchising is a very profitable business, especially when buying a franchise from a well-known trademark. The potential of this business is very profitable for a long time, but it should be noted that not all types of franchising are suitable for everyone.

From the explanation above, we can draw some conclusions about the franchise business, namely:

  • A franchise business is a business in which the owner licenses its operations (products, brands, and knowledge) in exchange for franchise fees.
  • Franchisors are business owners who grant licenses to franchisees (franchisees).
  • In running a franchise business, some rules and regulations must be carried out by the franchisor and franchisee.
  • Thus a review of the franchise business. Hopefully, this article is useful and adds to your insight.

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