Franchise Business Model
In order to learn how rapid business expansion growth works, you would need to understand the franchisor and franchisee business model first. Many of you who have a good business, best products, supreme quality services can start expanding their businesses even further through a well-chalked process and become a master franchisor.
A Franchisor is the one who shares its business’ proprietary tools, technology, software, manuals, trademark, signages, business processes with a franchisee for further expansion of the business. It is advised to prepare and keep a ready business manual that will help franchisors multiply their business through franchising. The returns expected from a franchisee could be through revenue share, profit, and royalty. A franchisor can benefit from rapid business expansion on the franchisees’ cost and investment without spending their own funds. A franchisee too can benefit from this method since he receives a ready blueprint of the business, including business model, operating methods, existing and ready customer base, etc.
Franchising business model has evolved in almost all industries like automobile, retail, pharma, pets, clothing, hospitality, food and drinks, education, accessories, and many more.
From a Franchisor’s point of view, there are three effective franchise business models – COCO, FOFO, and FOCO. In a COCO business model, the business is company-owned as well as company-operated. The capital and operational expenditure, both are done by the company itself. As a franchisor, it is essential for you to open a successful branch of the COCO model at the beginning of the business so that the franchisee prospective partners, themselves will come asking for a franchise. In order to attain the same, the location, manpower, profitability, footfall must be excellent.
A Franchisee owned and company-operated business model is called FOCO which means the company will carry the expense of operating the business however, the capital investment will be of the franchisee only. This type of model is only possible if you think as the franchisor you have that special expertise required to run the business successfully more than anyone else.
The last model from a franchisor’s perspective is the franchisee-owned and the franchisee operated – FOFO business model. In this type of model, the franchisor gives the trademark, brand, products, manual, process, standardization, etc. to the franchisee in exchange for royalty and fixed amount. The franchisee is expected to spend, operate and look after the growth of the business whereas you will only reap the earnings through royalties. This business model has its perks like giving the responsibility of the business in the franchisee’s hands. However, there are some downs too like if the brand standards are not followed correctly by the franchisee it could result in damaging the reputation of the franchisor’s business. Hence, the FOFO model comes with high risk where the company does not have control over the franchisee business.
Comparing all three business models, in the FOCO model the franchisee is like the sleeping partner who will invest in the franchise and leave the operations to you. However, in the FOFO model, the franchisee will be actively involved since he is the investor, the operator and the profit bearer of the business.
The advantages of a Franchise business are that, there are no running costs involved, profits will become recurring revenues, you will gain international presence as well as build the economies of scale. The disadvantages of a franchisee business are only when you do not control the operations of the franchisee business as it has the potential to damage your reputation if they do not meet the business standards. This is why it is important to maintain a standard operating procedure, manual and other critical decisions related to the business from the inception itself.
Take precautions and do not be in a hurry to have a franchisee business partner instead choose them wisely. Ensure there are no variations involved and follow the standardized procedure only in the franchise model. As a Franchisor, it is a mandate for you to have regular checks on the cleanliness, customer service, pricing, and quality of the franchisee’s business. It is important for a franchisor to be more organized in the areas of effective marketing, sales, staff training, brand standards, etc. It is also, advised to hire a good attorney and lawyer at the start of the business. Keep transparency and clear communication in business operations. If you are a startup business, make sure you have your franchise disclosure document ready in hand in a distinctive format. As a franchisor, discuss your brand’s values, beliefs, culture, attitude, and nature of the business to decrease the risk of failure and closely monitor your franchisee’s every activity with regards to business protocols and standards.
Franchisee location is a critical factor to consider and it is always advised to keep it close to the home business location following a ‘Hub & Spoke’ formula. In this, the Hub – master franchisor is situated in the center and all the franchisee locations who are the spokes encircle the hub.
In conclusion to this article, it is suggested to have a business mentor from your industry or a consultant who can help you in the step by step process of the business. Utilize the expertise of a strategic consultant who will guide and mentor you throughout the process of the franchise business.
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