Understanding the Franchise Model

As much as franchise systems may differ in products and services offered, the underlying premise of franchising remains the same. Before you begin exploring franchise options by brand, take some time to explore and understand the components of the business model and exactly what it means to join a franchise system. A little bit of due diligence and understanding early on can go a long way.

The five fundamental roles of a franchise system include:

1. Proprietary Operating System

The initial franchise fee covers access to the Franchisor’s validated and documented business system. A good turnkey Franchisor provides help with set?up, initial training, and on?going support, all designed to reduce the number of “days to first dollar.” The “system” allows the Franchisee to expedite their business launch and focus on sales vs. setting up a system and process.

2. Managing Brand Equity

Developing brand standards and adherence to the system is critical for managing customer expectations and their decision to do business with the brand. While the Franchisor may take responsibility for brand management on a macro level, Franchisees are expected to engage in local unit advertising initiatives. Brand strength is built upon commitment from all stakeholders and the old adage “if we build it, they will come” does not always apply.

3. Revenue Sharing

For access to the on?going programs and offered by the Franchisor, the Franchisee agrees to remit a percentage of their sales to the Franchisor. Basically, the brand and the systems which are part of the brand, may contribute to the decision for a customer do business with your company. A significant portion of these funds are often reinvested or used to offset the cost of research and support of Franchisees within the system.

4. Development and Distribution of the Supply Chain

Timing is everything and on?going market research on the latest products and anticipated needs of the customers often falls to the Franchisor. It is their job to be aware of industry trends, developments, and new products. Supply chain management plays a role as they are often able to leverage better pricing and access to proprietary products or services which can provide a competitive advantage.

5. Being Customer Centric

Organizations where the Franchisor and the Franchisor are aligned and focused on delivering client centric goods and services with an emphasis on loyalty are infinitely more successful. Both the Franchisor and the Franchisee are focused on acquiring and retaining customers who will use more and more of products, on a more regular basis….and tell their friends.

Making the decision to join a franchise system starts with a fundamental understanding of the business model. No matter which option you chose, if you are prepared and have done your research, you can approach the opportunity with confidence.