What is a franchise
A franchise is a method of business relationship in which the owner of a large business transfers to another entrepreneur the right to use his trademark and branded features.
However, the latter does not have the right to make significant changes to them. Both benefit. Franchise owner in the form of a fee from the buyer (usually a one-time payment for the right to use and periodic contributions - a certain percentage of turnover).
And the one who purchased it gets rid of the need to promote the brand from scratch.
Many franchise owners grant entrepreneurs not only the right to use a trademark, but also:
- Ready business plan.
- Employee training.
- Support in technical and legal issues.
- Market entry strategy.
- Recommendations for business planning and location.
- Goods supply.
- Advertising strategy.
This is not a mandatory list. The terms of promotion vary from brand to brand. It turns out that a franchise gives you a working, proven way of doing business, training, assistance, and an explanation of the subtleties and nuances. Well, and a recognizable brand, of course.
Examples of franchises include chain stores or McDonald's. Many of them are not managed from a single center, and do not have one owner, but are independent businesses.
At the same time, the brand, the form of offering the product to the buyer and corporate standards of behavior for employees still remain.
How much can you earn from a franchise?
Earnings are calculated by the franchise owner in advance and are easy to predict. The documents indicate the payback period for investments (often about 2 years), as well as approximate profits based on the average parameters obtained at already operating facilities of this type. The estimated profitability, regardless of its size (for example, when assessing whether a franchise with a profitability of 10 or 20 thousand dollars per month is preferable), must be calculated before reaching net income. The buyer also needs to take into account all associated costs. For example, if you have to give 10 thousand to the owner from a franchise with a profitability of 20 thousand, and the expenses will be 5 thousand dollars, then the payback period for such a franchise may be twice as long as that of a less profitable one at first glance.
Which franchise to choose for business
When choosing a franchise, you need to pay attention to the following points.
- Features of consumers in the area where you plan to start a business. Not all franchises are suitable for certain localities. It is quite obvious that it makes no sense to open a coffee shop in a small village with 10,000 people. It would be much more promising to organize a small store.
- Rules for granting a franchise. Most brand owners sell a franchise only if certain conditions (often quite strict) are met. Answer the question for yourself: are you ready to fulfill them?
KFC requirements for restaurant premises.
- Experience of other entrepreneurs. There are thematic forums with reviews of franchises. Chat with other businessmen and find out how comfortable and reliable it is for its owner to work.
- History of the company. Ideally, the brand owner should achieve success in commerce and have previously been involved in the business that they are offering to run as part of a franchise. And naturally, first of all you need to start from your financial capabilities. Small investments will not bring much benefit, and may not even pay off.
Thai massage therapists or what is a false franchise
I also witnessed the opening of a spa with professional massage therapists from Thailand on a franchise basis. The idea was great, profitability was guaranteed, marketing and advertising were widespread throughout the country.
I have written more than once about how dishonest franchisors make money from royalties, lump sum payments, and the sale of raw materials and auxiliary equipment.
Here everything is the same, plus organizing the search for massage therapists, obtaining visas, delivery, their accommodation and meals fall on the shoulders of the franchisee.
This turned out to be not a lifting slab for an unestablished and unregulated business, because the franchise offers the business model and brand of the franchisor, as well as other tools for creating and running a business. Of the ten franchises sold, only 2 spas opened.
Each had two Thai massage therapists, who, after working for 3 months, left forever. The business completely went bankrupt, the investment did not pay off, and the desire to build a business was gone forever. Unfortunately, false franchises have become increasingly common lately.
Where to buy a franchise
Purchasing a franchise is very simple. You just need to go to the website of the selected organization, find the appropriate section and fill out the feedback form (provided that they distribute the franchise).
Staff will contact you for a business presentation and purchasing instructions. There are also aggregator sites on the Internet where owners of small organizations leave franchise offers.
On most of these services, you just need to select the appropriate option and also fill out the feedback form. Offers are usually sorted into categories, which is very convenient.
How much starting capital is needed?
The cost of a franchise usually consists of three components:
- Lump sum fee (payment for the right to a franchise).
- Start-up investments (rent or purchase of premises, planning, renovation, purchase of furniture and equipment, settlements with employees, etc.).
- Royalty. Monthly/quarterly contribution from revenue.
The lump-sum fee and royalties are set by the franchise owner. The amount of starting capital depends on the characteristics of the business.
Naturally, the more you use the premises, the higher the repair costs will be, the more employees you have, the more you will spend from salaries, etc.
Most franchise options will require an investment of 1,000,000 to 3,000,000 rubles - this is the cost of purchasing a franchise and investing in the opening. There are also more expensive options that involve costs of 5,000,000 - 10,000,000 rubles.
In such franchises, everything is thought out to the smallest detail; when purchasing, you are literally “led by the hand,” which means the risk is reduced to a minimum. If you wish, you can find more economical offers, the investment amount for which will be only 300,000 - 600,000 rubles.
But the quality of such franchises is appropriate; in most cases, you will only receive a brand name and will deal with the business yourself.
Franchise reviews
Despite the ongoing crisis and some shortcomings that cannot be ignored, novice businessmen continue to be interested in the franchise; reviews about it can be found on the Internet or try to look for friends who have similar experience.
Here, for example, is the personal experience of a young woman who had been looking for an interesting business for a long time:
“I’ve been looking for something like this for a long time. The problem was also that she didn’t understand anything about business, and was very afraid of burning out. I was advised to learn more about franchising. I found this idea interesting. Like any woman, I enjoy visiting clothing stores; I wanted to do something similar myself. I approached the franchising association with my ideas. There they helped me select several suitable options, from which a few days later I chose one of the companies to purchase a franchise. I was very worried how everything would go. But they helped me prepare the premises, train the staff, and generally constantly guided and suggested how to run the business. In addition, the company already has a well-established name in the market. The investment paid off for me within a month. I’m all for franchising: choose it if you don’t have business experience, you definitely won’t regret it!”
There are a lot of positive reviews about the franchise of various catering chains. The more popular the brand, the more profit the company’s partners make. Therefore, when choosing this direction for yourself, think about buying a franchise from well-known, well-established franchisors.
Here, for example, is a real review about the fast food restaurant chain Subway:
“If you don’t have any experience in business, and you still don’t have enough life, your pocket is empty, but your ambitions don’t let you sleep peacefully at night, then feel free to choose franchising. I took a risk, bought a franchise from Subway, and within six months I opened a second location, and then several restaurants in neighboring cities. Subway perfectly helps to cope with the first difficulties, guides and very strictly controls all processes. For those who are used to working and being responsible, this is the best choice. You gain invaluable experience, and within a few months you will be able to recoup all expenses.”
Franchises in the field of children's leisure, as well as sports or musical and aesthetic education, are very popular. Franchises of sports and dance clubs allow many people to realize their dreams not only about business, but also to demonstrate their creative, pedagogical and intellectual abilities.
“In my city there are very few sports sections where children could play with pleasure. After analyzing all the franchises available in this direction and reviews about them, I chose the Junior football club for myself, and did not regret it at all. Before the opening of the school, the company helped me resolve all issues, including legal and personnel issues. And to this day, not a single question of mine remains unanswered. There are about 40 children constantly attending the school. Within a few months, we completely covered all the costs of purchasing the franchise itself, inventory, and advertising costs. The children and their parents are very happy with the school.”
However, there are also negative opinions. Very often this is due to the fact that people buy a franchise from companies that little is known about in the region. Because of this, it is much more difficult to attract customers; competent promotions are required; much depends on the person who owns the business:
“My friend purchased goods from a very well-known brand in this country abroad. She liked the quality of the clothes and the price. She decided to buy their franchise and open a store in her city. However, no one here had heard anything about such a brand and, despite the good product and the support of the management company, the business did not take off. Therefore, you should not get involved with unknown brands - it is better to follow the already beaten path and buy a franchise from a well-known profitable company.”
Reviews of franchises and real people's stories often contain practical advice and warnings. Many who have such experience advise paying attention to what the royalties will be expressed in.
If, according to the agreement, the franchisor receives a percentage of the income, then he will be personally interested in the growth and development of your company, will contribute to this, guide you and control the work very strictly. If the payment amount is fixed, then most likely the management company will not promote your business.
You can learn about the risks of franchising a specific company by talking with other entrepreneurs - franchise owners; Their reviews and opinions are worth carefully studying. This information is usually easy to find. This will help you decide whether to purchase a franchise or wait and look for another one.
How much can you earn per month?
The average franchise, in which about 1,500,000 rubles have been invested, brings in from 150,000 to 300,000 rubles of income per month. But here it is important to consider several nuances:
- at first, usually six months to a year, there will be no income at all, during this period the investments will pay off;
- It is far from certain that it will be possible to achieve average income from franchising.
It is also worth understanding that a franchise is not a guarantee of success. As in any business, here you can “burn out” and be left with nothing.
Profitability report for pizzeria Dodo-pizza by city.
A franchise is a transfer of the right to conduct business using a ready-made scheme (including a brand). This relatively small investment will eliminate the need to find clients and simplify many business processes.
But you need to understand that, like any business, franchising involves risk and the possibility of losing the business. Do you think a franchise helps develop a business, or is it a waste of money?
