What is franchising?

Definition

Franchise as a business model has become more and more popular in today economy. But what does franchising mean exactly? It is an arrangement where one party (the franchisor) grants another party (the franchisee) the right to use its trademark as well as certain business system and processes, to produce and market a good or service according to certain specifications, against the payment of a fee.

Licence vs. Franchise

Franchise should not be confused with the Licence agreement: the latter only involves the rent of the trademark or other intellectual property. Differently, a franchise has a much wider application involving the use of the business system. In the case of the Licence, the Lincesor typically makes the product and has direct control over the product quality. Differently, the Franchisor doesn’t make the product but teaches other to make the products or to provide the service and it has indirect control over the product quality.

BENEFITS

FRANCHISOR

Allows to grow a brand with limited capital
Allows to benefit from local market knowledge and expertise of he franchise without putting resources on site
Accelerated growth
Parallel growth in multiple territories
Reach out part of the world where we would not want to go with direct investment
Lower expenses
Limited losses (as royalties calculated on top line)