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CHAPTER 1 : BASICS OF FRANCHISING ● Product Distribution Franchise
A franchise business is a partnership between a franchisor
(original business) and a franchisee (investor that seeks to buy
the right to sell and use the original business’ name,
trademark, concept, process, goods, and services).
According to The International Franchise Association:
franchising is “a method for expanding a business and
distributing goods and services through a licensing
relationship.”
Explanation: a person or company (the franchisor) grants the
license to a third-party person or company (the franchisee) to
conduct business using the franchisor’s products/services.
The franchisor also provides the franchisee with an operating
system, brand and support.
Types of Franchise Business in the Philippines
● Business Format Franchise
- most common type – where the franchisor gives the
rights to things like trademarks, trade names, business
processes, as well as the system order, which allows
the franchisee to operate the business for a fee.
- provide a detailed plan, procedures, and guidelines
concerning almost every aspect of the business.
- provide initial and ongoing training and support, which
is essential to the success of a franchisee.
- similar to the relationship of a supplier and distributor.
franchisor is responsible for providing the product, which the
distributor is then authorized to sell.
NOTE: A notable difference between product distribution and
business format is that in the former, the franchisor is only
responsible for the product, whereas in the latter, there is also
training, support, and access to business processes included
in the agreement.
Pros and Cons of Franchising
Franchising Advantages
1. Recognized and established brand
- When you buy a franchise, you have the right to use the
franchisor’s trade name and trademark or company
logo.
- This gives you access to the well-known brand’s
customer base, so attracting and finding your first
customers won’t be that difficult.
2. Tried-and-tested business model
- The business operating systems of franchising brands
have been tested in various markets in the Philippines
and have already been proven to be effective.

3. Easier to get a great location
- Having the backing of a large corporation or popular
brand makes it easy to get a lease for your franchise
business site.
4. Training support
- Franchisors provide training to help franchisees
understand their business model and learn the
day-to-day operations, customer service, and use of
trade secrets such as proprietary recipes for food
franchises.
5. Pre-opening assistance
- Franchisors help in the pre-opening needs of their
franchisees such as site design, evaluation, and
construction. Some franchise packages also include
assistance for the grand opening.
6. Marketing support
- Franchise brands in the Philippines have solid
marketing and advertising campaigns in place, and
their effects trickle down on their franchisees.
7. Continuous research and development
- No need to worry about spending time and money for
product development and innovation because the
franchisor will take care of that. You can just focus on
operations instead.
8. Faster ROI
- The access to an established brand name, customer
base, operating system, and all sorts of opening
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support cuts down the time it takes to recover your
investment.
9. Higher chances of success
Franchising Disadvantages
1. Expensive startup costs
- The capital needed to start a franchise business is its
biggest drawback. Usually, the initial investment is
twice as (or even higher) that for opening a business
from scratch.
The following are the typical startup expenses when starting a
franchise business.
● Franchise fee – This one-time, upfront fee is what you
pay to gain the license to use the franchise brand’s
proprietary information legally, such as its trademark,
logo, and trade secrets. The more popular the brand is,
the higher this fee is charged.
● Royalty fees – The royalty payments for franchise
businesses in the Philippines typically range from 3% to
10% of the monthly gross sales. It’s paid every month,
so this can reduce your net income. Not all franchisors
charge this fee, though.
● Advertisement and marketing fees – These are a small
percentage of the gross monthly sales, which are used
to fund the franchisor’s marketing support.
● Cost of supplies – Although some franchisors provide
the initial supplies as part of the franchise package,
franchisees have to keep buying the next batches
either directly from the franchisor or its accredited

suppliers. This can cost you higher compared to
sourcing your own suppliers.
2. Limited flexibility and autonomy
- Franchising doesn’t offer much to franchisees in terms
of creativity and innovation. You’re bound to follow the
rules in the operating manual and franchise agreement.
3. Lock-in period
- Franchise contract terms range from two to five years
or longer. Within that period, you’ll be stuck with the
company regardless if it’s performing well financially or
not.
4. Business risk
- Franchising is also a risky venture. Your success will
depend on the franchisor’s success. If the company
fails, the reputation and performance of its franchisees
will suffer as well.
Where to Find Franchise Business Opportunities in the
Philippines
- In this section, we’ll explore various resources and
platforms to discover lucrative franchise business
opportunities in the Philippines.
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Franchise Directories
- A franchise directory is a tool that you can use to help
you find the best franchises in your area. When using a
franchise directory, you can narrow down your search
by industry, budget, and other criteria.
Franchise Expos
- Franchise expos are another great way to find franchise
business opportunities in the Philippines. These expos
bring together a variety of franchisors and potential
franchisees in one location.
Franchise Associations and Government Agencies
- Aside from franchise directories and expos, another
avenue to explore for franchise business opportunities
in the Philippines is franchise associations.
- These associations provide a wealth of information
and resources for entrepreneurs looking to invest in a
franchise.
- The Philippine Franchise Association (PFA) is the
country’s voluntary self-regulating body for franchising.
They offer various resources including a directory of
franchises.
Business Brokers
- These professionals are experts in helping individuals
buy and sell businesses, including franchises. They can
help you find a franchise business opportunity that fits
your goals and budget.

Franchise Consultants
- Franchise consultants are experienced professionals
who assist potential franchisees in making informed
decisions about franchise business opportunities.
Bank Franchise Opportunities
- There are banks in the Philippines that offer franchise
opportunities to interested investors who need a loan.
This can be a great option for individuals who are
interested in having a business but do not have the
capital to do so.
How to Choose the Right Franchise Business for You
Step 1: Know your personal goals
Step 2: Take your time in researching
To ensure you research well, do the following steps:
a. Join franchising events
b. Join franchising groups
c. Read the fine print carefully
Step 3: Factor in your interests and strength
Step 4: Take your budget into consideration
Step 5: Create a shortlist of the franchises that piqued your
interest
Step 6: Do the math
Step 7: Do your due diligence
a. Research about the inclusions of the franchise
b. Research the support system of franchises for
entrepreneurs like you
c. Assess the company’s reputation
d. Look for reviews or talk to franchisees
e. Schedule on-site visits
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f. Research what people think about the business
g. Check the competition in your area
h. Check if the company is facing lawsuits
i. Check if the company is accredited by the government
j. Ask a lawyer to review the contract
Step 8: Establish your expectations with the company
10 Tips for Franchise Success
1. Choose the right business for you.
2. Enhance your skills.
3. Have a business plan.
4. Consult a specialist.
5. Think about your location.
6. Focus on the quality of service.
7. Never stop marketing.
8. Can’t sell? Hire someone who can.
9. Do networking.
10. Know your industry.
Franchise Business in the Philippines FAQs
Can you transfer or sell your franchise business to another
person?
- This depends on the franchise agreement. Make sure
to ask your franchise attorney about the terms and
conditions of your franchise.
What types of franchise support are provided by Franchisors in
the Philippines?
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- Most franchisors in the Philippines provide the - If your franchise business fails because the franchisor
following support: did not give you the support laid out in your contract,
● Sales training you may sue them for breach of contract.
● Marketing and PR - But if your franchise business fails even if your
● Access to supplies franchisor helped you throughout your business
● Financial assistance journey, you may choose not to renew your contract
● Administrative support after it expires. You may also request early contract
● Proven business plan termination from your franchisor.
● Location support
● Protocols and standards
● Ongoing communication What are the other initial costs associated with starting a
franchise business?

Is it better to invest in a franchise business than to start your

own brand/business? - The major initial cost associated with starting a
franchise business is the initial investment.

- Franchise businesses usually have a higher success

rate compared to startups. This is because they
already have a proven business model that has
contributed to their success.
Is success guaranteed when you franchise a business?
How long does the process of becoming a franchisee typically
take?
- Depending on your franchise business of choice, it can
take 2 to 6 months or more, including training.

- No. As with other business ventures, your success
largely depends on the market condition, and your
ability to lead your team. That said, your franchisor will
surely help you achieve success.
What to do if your franchise business fails?
How does a franchisee go about selecting the right location
for their business?
- There are a few things to keep in mind when choosing
the location. This includes your target market and
demographics, the visibility and ease of access of the
location, and the competition in the area.
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Are there any regulations or laws that govern the franchise

industry in the Philippines?

- Currently, there are no specific laws that govern

franchising in the country. That said, franchise holders
of MSMEs must have their agreements registered with
DTI.