In the U.S., there are more than 750,000 franchises that employ around 7.5 million people and generate nearly $700 billion annually. Clearly, franchising is big business, but why is it so popular? The answer is simple – there are many advantages to buying a franchise. If you’ve been thinking about opening a small business but can’t decide whether it’s better to buy a franchise or start a company from scratch, keep reading to learn more about the franchise business model and how it can quickly propel you onto the road towards success.

What is the Franchise Business Model?

Franchising is a form of business in which the owner (franchisor) develops, markets, and brands a product and/or service and then sells a license to other entrepreneurs (franchisees) so they can replicate the concept in new locations. In exchange for paying the franchisor an upfront franchise fee and ongoing royalties, the franchisee is allowed to use the franchisor’s brand name and business model. Additionally, the franchisee receives training and ongoing support from the franchisor to maintain consistency across the brand and to encourage success.

While there are many types of franchise agreements, the following three are the most common:

  • Product franchise – Perhaps the oldest type, the product franchise allows franchisees to distribute or sell the franchisor’s products or services within a certain territory. Think of car dealerships like Ford or Toyota.
  • Manufacturing franchise – In this model, the franchisor gives the franchisee exclusive rights to manufacture and distribute items using the franchisor’s brand and trademark. For instance, Coca Cola sells its concentrated syrup to a franchisee that then adds water to the syrup and bottles the finished product for distribution.
  • Business Format Franchise – Because it’s the most common type, the business format franchise is what many people think of when they hear the word franchise. In this model, the franchisor offers its business model and brand name to franchisees in exchange for fees and a percentage of sales revenue. Many fast food restaurants, such as Taco Bell or Subway, are business format franchises, as are service providers such as Molly Maid. While franchisees own their individual locations, they are obliged to buy all of their products and supplies (food, paper products, uniforms, etc.) from the parent company. In return, the franchisees receive ongoing support, national advertising, and continued product development.

What is the Franchisor/Franchisee Relationship?

The franchise business model creates an interesting partnership between the franchisor and the franchisee. Some people liken the relationship to that of a parent (the franchisor) with a child (the franchisee). While the franchisor certainly offers support and guidance and wants the franchisee to succeed, the parent/child analogy doesn’t hold up because the franchisee pays to receive that support and is promoting the franchisor’s brand in order to earn revenue for both parties. As such, the franchisor and franchisee are in an interdependent relationship with the franchisor working to protect and grow its brand and the franchisee striving to protect their investment and build a profitable business. In a healthy and successful franchisor/franchisee relationship, each partner accepts certain responsibilities.

Franchisor’s Responsibilities

Of course, the franchisor’s first responsibility is to develop a brand and build a successful business model. This includes creating logos, trademarks, advertising slogans, etc. and continuing to refine and strengthen the brand name over time. A good franchisor also understands that in order for the brand to be successful, the company’s franchisees must be successful. To that end, the franchisor provides initial and ongoing training for franchisees and their employees and helps franchisees attract and keep clients by creating strong marketing and advertising campaigns. Because reliable suppliers can be difficult to find, the franchisor locates top-notch vendors and develops strong working relationships with them in order to secure the best prices and services for all franchisees. Additionally, the franchisor stays on top of industry trends and changes in technology to assure that the brand stays current and isn’t being outpaced by competitors with fresher ideas.

Franchisee’s Responsibilities

The franchisee isn’t an employee of the franchisor but is contractually obligated to implement the franchisor’s business model and to comply with company guidelines and standards. It’s the franchisee’s responsibility to promote the brand in a positive light and to adhere to the franchisor’s mission statement and core values. As the owner of their particular franchise location, the franchisee also has all the usual responsibilities that come with operating a business – paying the bills; hiring, training, and managing employees; meeting payroll; managing inventory; maintaining the office and work equipment; selling products and services; networking and promoting the business; overseeing customer relations; and more.

What are the Advantages of the Franchise Business Model?

One of the biggest advantages of purchasing a franchise is that it enables an entrepreneur to get a jump start in an industry by buying into an established brand with a proven business model. If you start a business from scratch, you’ll have to do market research, negotiate with vendors, create an advertising campaign, and estimate costs based on no previous experience. When you buy a franchise, however, you get a ready-made business. The franchisor does the research to ensure that your new location is being opened in a viable market. You then receive training on how to set up and operate your business based on the franchisor’s proven formula. You don’t have to find vendors or figure out how much inventory to stock; you don’t have to come up with a marketing strategy or create a customer relationship management system – your franchisor has already done the hard work for you.

Furthermore, you receive ongoing support once your business is up and running. A good franchisor will continue to provide training, networking opportunities with other franchisees, new marketing tools, updates on industry trends, and much more. While you get to be the boss at your location, you have the comfort of knowing that an entire team is working to build the brand and to encourage success for the whole company.

Why Should I Buy a Cabinet IQ Franchise?

Cabinet IQ is a high-tech cabinet and countertop company that is transforming the kitchen and bathroom remodeling industry. Just as we provide our customers with outstanding quality, service, and value, we present potential franchisees with a five-star brand and business model. Currently, we’re offering a ground-floor opportunity to entrepreneurs who are self-motivated and determined to succeed. If you’re ready to open a new business and want to know more about how franchising works, our franchise development team can answer all of your questions. Fill out and submit the form on our website to get started on your franchise journey today.

Published On: May 24th, 2022 / Categories: Featured, News /