What is a Franchise?
A franchise is a business model where an individual (franchisee) buys the rights to use an established brand’s name, products, and business system from the owner (franchisor). The franchisee operates the business under the brand’s guidelines and pays a fee in return.
Example:Imagine you want to open a restaurant, but instead of starting from scratch, you take a food franchise of a popular brand. The company gives you everything needed—menu, ingredients, marketing, and training—so you can run your restaurant successfully.
Basic Features of a Franchise:
- Uses a well-known brand name.
- Operates under the company’s guidelines.
- The franchisee gets training and support.
- The franchisor provides marketing and business strategies.
How to Start a Franchise Business?
Starting a franchise business follows a few important steps.
Step 1: Research and Choose a Franchise
- Find a franchise provider
- Check their franchise models, investment cost, and support system.
Look at the success rate and demand for the brand.
Step 2: Get the Franchise Models
Different companies offer various franchise models, such as:
- FOFO (Franchise-Owned, Franchise-Operated) – You own and operate the business.
- FOCO (Franchise-Owned, Company-Operated) – You invest, but the company handles everything.
FOPO (Franchise-Owned, Partner-Operated) – You own the business, but a partner helps in managing operations.
Step 3: Contact the Franchise Team
- Reach out to the company for more details.
- Ask about investment, revenue-sharing, and operational support.
Understand the terms and conditions before signing the agreement.
Step 4: Invest and Set Up Your Business
- Pay the franchise fee as per the selected model.
- Set up the business location (physical or cloud-based).
- Get the required training and marketing support from the company.
Step 5: Launch and Start Operations
- Follow the business plan provided by the franchisor.
- Start serving customers while maintaining the brand’s quality.
- Market your franchise location to attract customers.
How Does the Franchise Program Work?
The franchise program works as a partnership between the franchisee and the franchisor. Here’s how it work:
Franchisor Role:
- Provides the business model and brand name.
- Gives training and operational support.
- Helps with marketing and promotional activities.
- Maintains quality control and customer service guidelines.
Franchisee’s Role (Your Role as a Business Owner):
- Invests in the franchise setup.
- Operates the business as per the company’s standards.
- Handles customer service and daily activities (if required).
- Shares a percentage of the revenue with the franchisor.
In some models like FOCO, the company runs everything, and the franchisee only invests and earns a 19%profit share. In FOPO, the partner manages daily work, while the owner monitors the business.
Advantages and Disadvantages of Franchises
Franchising is a popular business model because it allows businessman to own a business with lower risk. However, like any business, franchises have both benefits and drawbacks.
Advantages of Franchises
We provide a Business Model – You don’t have to start a business from scratch. The franchisor provides a ready-made business setup.
Brand visibility – People already know the brand, making it easier to attract customers.
Training and Support – The company provides training and ongoing support to help you run a franchise business.
Marketing support – You get national and local advertising from the franchisor.
Effort-free – Franchises have a higher success than independent startups because they use a tried-and-tested system.
Quick Profitability – Since customers already trust the brand, you can start making money quickly.
Disadvantages of Franchises
- Initial Investment – You need to pay a franchise fee to start the business. Some franchises require higher investment.
- Royalty Fees – Franchisors must share a percentage of profits with the franchisee regularly.
- Limited Control – You must follow the company’s rules and cannot make major changes to the business.
- Contract Limitation – In some franchise agreements, exiting the franchise is difficult without penalties.
Dependency on the Brand – If the franchisor faces problems, it can affect your business as well.
Franchise VS Startup
Franchise Business
- Uses an existing brand and business model.
- Zero-risk because the system is already successful.
- A franchise fee is required, as well as royalties payments.
- The franchisor provides training, support, and marketing.
Startup (New Business)
- You create your own brand,a lot of investment, and a business model.
- There is a higher risk since you are starting from the beginning.
- No franchise fees, but you must invest in branding and marketing.
- You have full control over how you run the business.
- No guaranteed success – you must test and grow the business yourself.
Which One is Better?
- If you want low risk and fast growth, a franchise is a good option.
- A startup might be best if you prefer complete freedom and creativity.
How Does the Franchisor Make Money?
A franchisor earns money in different ways while providing support, branding, and a ready-made business model for franchisees. Below are the main ways a franchisor makes profits:
1. Franchise Fee :- The franchise fee is a one-time payment that the franchisee pays to start the business. This fee allows the franchisee to use the franchisor’s brand, business model, and training.
For example, if a food franchise costs ₹2.9 lakh + GST, the franchisee pays this amount to set up the business.
2. Royalty Fees :- After starting the business, the franchisor shares a portion of their monthly sales revenue with the franchisee.
In some models, like The Rolling Plate’s FOCO Model, the franchisor gives 19% of the monthly sales revenue back to the franchisee. This helps cover ongoing support, brand marketing, and business expansion.
3. Marketing and Product Supply Fees :- Franchisors often charge marketing and product supply fees. This ensures that all franchise locations maintain the same branding, quality, and advertising standards.
Example:
- Franchise Fee: ₹2.9 lakh + GST (one-time)
- Franchisee’s Monthly Profit Share: 19% of sales revenue
- Marketing and Product Fees: Additional costs for advertising and supplies