What is business format franchising?

What is business format franchising?

Franchising is a highly dynamic system for running a business. In simple terms it involves the owner of a successful business (franchisor) granting the rights to another party (franchisee), to set up and run a wholly identical business in a defined area and for a specific time using the owners trademarks and other intellectual property.

How it works

In granting the right to operate its business the franchisor will charge the franchisee an up-front fee. The franchisor will also provide the franchisee with continuing support to help them run their business, sharing their know-how and experience – marketing, training, product supply – and for this an on-going fee will be charged.

Franchising is now big business. In the UK franchising has been adopted by many famous ‘high street’ brands in a wide number of service market sectors – retail, repair & maintenance, property sales/letting, automotive repair, domiciliary care, parcel delivery.

The criteria for success

Can any business be franchised? No, it’s not right for every business but it does work for many. Franchising is essentially a method of distribution and so it’s particularly suited to service businesses that operate through a branch, retail or mobile network.

For a business to franchise it must fulfil these criteria:

  • Proven format: Is there a track record of success? Is the business profitable?
  • Easy to duplicate: Will an individual be able to practically operate the business in an
    identical way? Consider the cost of equipment, premises.
  • Easy to learn: You must be able to train people to operate the business within a
    reasonable timescale.
  • Profitable. The business must enable both parties to make money.
  • Cultural fit: A culture of mutual trust and support is necessary.

Mutual benefits that drive growth

Franchising is dynamic because it harnesses the power of vested interest. Franchisees are motivated because they run an already proven business, so risk is reduced. Franchisors expand very effectively – they spend little, actually generating revenue from franchise fees – and significantly reduce their overheads, while building a network of highly incentivised brand
ambassadors – franchisees.