Franchising is a business strategy where a company makes use of the business model that another company uses. A company sells the rights to use his business model to another company to use. In franchising, the company that sold the business model is called the franchisor and the company who bought the business model is the franchisee. This business strategy is normally used to build chains of restaurant and retail stores among many other businesses.
When a company starts franchising, it offers to sell its business model to any individual or company who intend to open up the same business. This individual or company pays the franchisor a certain fee for the controlled rights to use its business model for the franchise. All individuals or companies who bought a franchise shall share the use of the business name and shall be strategically located in different areas.
Oftentimes, the franchisees pay a one-time payment to the franchisor for the products and services it sells. There are other fees; the franchisee needs to pay which include royalty fees as well as other franchise dues that could be monthly or yearly depending on their agreements.
The franchisor is obliged to share valuable business strategies and information to all its franchisees and helps them with promotions and other necessary things for the franchisees to succeed in their respective areas to compensate for the fees given by the franchisees. It is an advantage for the franchisee as he is given the opportunity to invest in a successful franchise, as it no longer needs to start from scratch and establish a name on its own. The franchise is already established and known by the public. It just needs to follow what the franchisor did and make adjustments on a case-to-case basis depending on which area the franchise is being put up.
In franchising, the franchisor helps all its franchisees to become successful. The franchisor succeeds if most of its franchisees are doing well in their respective areas. When all or most of the franchisees started to earn profitably, the brand name also grow and becomes more successful.
Before any one decides to buy a franchise, it is vital that he makes all necessary research about the franchise that he is considering to buy. The franchise fees are quite expensive especially for those successful franchises but that does not mean that while some franchise do really well in the business; all of their franchisees will enjoy the same success. Other franchisees also fail to do well and profit the same way its franchisor did.