Do you have a successful business and considering to expend?
You may do so by opening new branches on your own and enjoy their profits. However, keep in mind that when opening a new branch, you will be required to raise the required funds, employ more employees and managers etc., and bear the risks associated with managing a fully owned chain of branches.
On the other hand, you may expend quicker by recruiting franchisees and enjoying their motivation and abilities in operating your brand’s new branches.
In franchising, the expenses of opening and operating of a branch lay at the hands of the franchisees, as independent business owners operating under your brands. As a franchisor, you will enjoy the payment of royalties (part of their revenue).
What does being a franchisor actually mean?
1. you allow someone else to use your brand and reputation.
2. You allow someone else to use your methods (operation, marketing etc.).
3. Franchisees recruited by you will pay you a one-time franchise fee, fixed fee or a combination of both.
4. You will not be required to fund yourself the opening of new branches operated under your brand.
5. You will need to invest in a system which will support the franchise: training and supporting your franchisees, recruiting new franchisees, business development, legal counsel etc.
This may sound promising to you, however – before considering becoming a franchisor, you should examine whether your business mode suits a franchise model. You should therefore ask yourself the following questions:
1. Is there sufficient demand for your product/services?
2. Does the retail price of your product suits the general public?
3. Is it possible to promote and advertise your product/services on standard and acceptable media and means in the market?
4. Are there enough potential locations that justify turning your concept into a franchise?
5. Can your knowledge and operational methods be transferred to other people/franchisees?
6. Do you have the necessary expertise and leadership experience needed to become a franchisor.
Flagship and pilot branch
In order to make the transition to a franchising company, you must make your pilot branch a model that can duplicate its success and business method. Your successful pilot will be used to show potential franchisees the success of the concept, test new products and ideas, and create operational tools for your franchisees, such as: operational manual and training for franchisees and their employees.
The pilot branch is the foundation from which you will build your franchising business. Therefore, you must ensure that the business concept, marketing and all its financial and logistical aspects are carefully planned and replicable. You must ensure that the following five elements of the “flagship” can be duplicated to the other branches operated by the franchisees:
1. Customer experience and your business differentiation.
2. Product range, retail pricing, supply and distribution.
3. Branding, marketing and advertising.
4. Recruitment and training of employees.
5. Financial and operational control.
Building a business model
A preliminary stage of the franchise sale process is creating a business model for the chain. The following are some criteria to be defined in the business model:
1. Initial franchise fee – the amount of the franchise fee to be paid by the franchisees who wish to join the chain, and which services / rights should be given in return (for example: assistance in finding a location, assistance in planning and designing of the location, operational guidance, etc.)?
2. Collection of monthly / continues royalties – it is necessary to determine what monthly/continues royalties you intend to collect from the franchisee and which services and support will be provided to the franchisee in return of said royalties.
3. Advertising and marketing – the amount to be collected from the franchisee in respect of advertising and marketing expenses must be determined at the national level and a marketing plan needs to be determined.
4. Legal elements – franchise agreement, registration of trademarks, etc.
5. Insurance – it is important to ensure that all insurances relevant to the business, including franchisees branches, are maintained.
Understand your franchisee
Your franchisee – your customer.
It is important to understand that your franchisee is actually your client. Therefore, before creating a business model, it is important to know the profile of the typical franchisee, what the potential franchisees are looking for and what kind of franchisee you are looking for.
The responsibility and obligation towards your franchisee does not end after you have entered into a detailed franchise agreement that protects, among other things, your intellectual property. As long as the franchisee is loyal to your regulations and procedures, he deserves to be treated as a loyal customer.
Recruiting your first franchisee
The potential franchisee can reach your franchising brand in a number of ways – personal acquaintances, advertising, exposure to the franchise as a customer of the pilot branch, participation in a franchising exhibition and browsing franchising portals.
You can choose the right recruitment platform for you, depending on your recruitment budget and your level of readiness to expand your brand.
Building a franchise actually begins after the first franchise you sold becames a successful branch. Your business success will be based on the success of the franchisees, leading to the joining of additional new franchisees to the family.