What is Franchising?
Franchising is a business format that allows a brand to grow exponentially by replicating its key success factors like product and service know-how, management, accounting, finance, and marketing.
It is the arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains:
- immediate name recognition
- tried and tested products
- standard building design and décor
- detailed techniques in running and promoting the business
- training of employees
- ongoing help in promoting and upgrading of the products.
Advantages of using franchise as a growth strategy
There are many advantages to franchising. Some of the more important advantages include:
- More Rapid expansion locally and into new territories
- Motivated management- whether it be local or regional growth, having a team that is motivated to build the business increases the chance of success,
- Grow the business with Capital investment from motivated franchisee
- Increased number of outlets allow for economies of scale
- Having more outlets allow for de-risk across the network
- Increases the Brand valuation and brand equity of the business
What does it take to build a strong franchise system?
Is Franchising is the right growth strategy for your business? Here are some key criteria your business should meet before embarking on franchising as your preferred growth strategy.
1. Strong Brand DNA
This is where every company differentiates and determines their core identity. Ensure the Business you intend to franchise has a clear Brand Identity that has distinctive brand attributes, values, style, brand differentiators, standards of performance, brand platform and brand promise; upon which to create competitive advantage, customer advocates, and memorable branded experiences.
2. IP Creation & Ownership
You need to own your brand’s Intellectual Property in order to exploit it. IP is an intangible asset to a company that gives your business exclusive rights to the use of the mark or creation to the exclusion of others and builds value to the business by giving investors the confidence to invest in or collaborate with the organisation.
3. Supply Chain
“Heroes may win battles, but it is excellent supply chains that win wars”
A supply chain is critical to the success of any business. For franchise expansion, this becomes even more important as your vendors start interacting with franchisees for efficient supply of goods and services.
Managing a franchise is not the same as managing your own outlets. Ensure there is a committed team to ensure growth.