Franchising

Submitted To :- Divya Verma

Suubmitted By :- Akansha Yadav
AbhishekThakur
Abhishek Mehra
Akhilesh Negi

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 What is Franchising?

• Franchising
– Franchising is a form of business organization in
which a firm that already has a successful product or
service (franchisor) licenses its trademark and
method of doing business to another business or
individual (franchisee) in exchange for a franchise fee
and an ongoing royalty payment.
– Some franchisors are established firms (like
McDonald’s) while others are first-time enterprises
being launched by entrepreneurs (like Uptown
Cheapskate).

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 Two Types of Franchise Systems
1 of 2

• Product and Trademark Franchise

– An arrangement under which the franchisor grants to
the franchisee the right to buy its products and use its
trade name.
– This approach typically connects a single
manufacturer with a network of dealers or distributors.
• For example, General Motors has established a network of
dealers that sell GM cars and use the GM trademark in their
advertising and promotions.
• Other examples of product and trademark franchisors
include agricultural machinery dealers, soft drink bottlers,
and beer distributorships.

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• Business Format Franchise
– An arrangement under which the franchisor provides
a formula for doing business to the franchisee along
with training, advertising, and other forms of
assistance.
– Fast-food restaurants, convenience stores, and
motels are well-known examples of business format
franchises.
• Business format franchises are by far the most popular form
of franchising, particularly for entrepreneurial firms.

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Types of Franchise Agreements
1 of 3

Individual Franchise Agreement

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 Area Franchise Agreement

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 Master Franchise Agreement

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Nine Steps in Setting Up a Franchise
System

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 Advantages and Disadvantages of
Franchising as a Method of Business
Expansion
Advantages Disadvantages
• Rapid, low-cost market expansion. • Profit sharing.
• Income from franchise fees and • Loss of control.
royalties.
• Friction with franchisees.
• Franchisee motivation.
• Managing growth.
• Access to ideas and suggestions.
• Differences in required business
• Cost savings. skills.
• Increased buying power. • Legal expenses.

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 Buying a Franchise
From the Franchisee’s Point of View
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• Buying a Franchise
– Purchasing a franchise is an important business
decision involving a substantial financial commitment.
– Potential franchise owners should strive to be as well
informed as possible before purchasing a franchise
and should be aware that it is often legally and
financially difficult to exit a franchise relationship.

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 The Costs Involved With Buying a
Franchise
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• Initial Franchise Fee

– The initial fee varies depending on the franchisor.
• Capital Requirements
– The costs vary but may include the cost of buying real
estate, the cost of putting up a building, the purchase of
inventory, and the cost of obtaining a business license.
• Continuing Royalty Payment
– Is usually around 5% of monthly gross income.

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• Advertising Fees
– Franchisees are often required to pay into a national or
regional advertising fund.
• Other Fees
– Other fees may be charged for various activities,
including:
• Training additional staff.
• Providing management expertise when needed.
• Providing computer assistance.
• Providing a host of other items or support services.

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 Advantages and Disadvantages of
Buying a Franchise
Advantages Disadvantages

• A proven product or service • Cost of the franchise.

within
• Restrictions on creativity.
an established market.
• Duration and nature of the
• An established trademark or commitment.
business system.
• Risk of fraud, misunderstandings, or
• Franchisor’s training, technical
lack of franchisor commitment.
expertise, and managerial
• Problems of termination or transfer.
expertise.
• An established marketing • Poor performance on the part of
other
network.
• Franchisor ongoing support. franchisees.
• Potential
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Seven Steps in Purchasing a Franchise

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LARGEST FRANCHISED CHAIN
Founders Fred DeLuca,
Peter Buck
Founded August 28, 1965
Headquarters Milford

Number of 41,512
locations restaurants in
more than 100
countries
Submarine sandwiche
Products
Pizzas,Salads
$84,300 –
startup costs
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$258,300
 Founders Richard and Maurice
McDonald

Founded May 15, 1940

Headquarters Chicago

Number of 37,855 restaurants

locations
Hamburgers
Products chicken french
fries soft drinks
$995,900 –
startup costs
Copyright ©2016 Pearson Education, Inc. $1,842,700
 Founders Joe C. Thompson,
Gordon

Founded 1927

Number of
68,236
locations

Headquarters Dallas,
Texas, U.S.

Products Slurpee beverage

Big Gulp beverage
cup

Number of
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Education, Inc. 45,000
4. Hampton Inns & Suites (midprice hotels) |
startup costs in 2010 $3,716,000 – $15,148,800

5. Great Clips (hair salons) | startup costs in 2010

$109,000 – $203,000 (3,694 locations in 2015)

6. H&R Block (tax preparation and now e-filing) |

startup costs $26,427 – $84,094 (10,800
locations in 2015)

7. Dunkin' Donuts | startup costs in 2010 $537,750

– $1,765,300

8. Jani-King (commercial cleaning) | startup costs

$11,400 – $35,050, (11,000 partners worldwide
in 2004) .
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Copyright ©2016 Pearson Education, Inc.