HOW FRANCHISING WORKS II

• Franchising


  A business model where a company (the franchisor) grants another party (the franchisee) the right to use its brand, products, and business systems in return for a fee
• Company decides it has a good thing going


  Wants to expand but doesn't want to run all the new locations
• Company is short on money for expansion


  Doesn't want to employ a bunch of local workers
• Company wants the person in charge of each location


  To be someone special, with skin in the game
• Franchisee wants to start a business

  Knows the local market, has some money to invest or can qualify for a loan, but not enough to buy property, fix it up, or equipment, and maybe not enough for much marketing, doesn't know the industry very well and would rather not go it alone
• Franchise model

  1. Company gives franchisee what she needs to hit the ground running

  2. Franchisee takes the company's training course

  3. Franchisee pays an initial fee for the franchise
• Franchise model


  • Depends on a good brand
  • Requires consistency (same thing at every location, cashiers wearing same logo, menus offering same food prepared the same way)
  • Customers remain loyal to the brand no matter where they go
• Franchise agreement


  • Rules for a franchisee, covering everything from operating hours to where she buys supplies
  • Requires franchisees to pay royalties, typically 5-10% of location sales
• There's no guarantee the franchisee will flourish, franchisees go belly-up about as often as they do well
• Company and franchisees don't always see eye to eye


  Company might impose higher royalty, limit flexibility in finding supplies and setting prices, franchisee can start to feel overburdened
• If franchisee doesn't sign on and follow the rules

  Company might take over the franchise, franchisee might lose her business
• Company has reasons to write rules and enforce them

  Making all franchisees buy from the same supplier can help bring down cost, higher fees can fund more advertising, company wants franchisees to follow standard rules to prevent freeloading on the brand
• Franchise employees


  Not known for earning big bucks
• Economists disagree on why franchise employees earn low wages
• When a company franchises

  It's adding extra owners, meaning more people taking slices of the pie, so there's more pressure to cut costs like wages, leaving less money for the workers
• Franchise model claims to be more efficient

  Can mean lower prices for consumers and more consumption, so more production and more jobs
• Other side claims franchising leaves workers with less money for buying stuff


  Means less consumption, less production, and fewer jobs
• Industries where franchising has spread


  • Gas stations
  • Car dealerships
  • Restaurants
  • Convenience stores
  • Hotels
  • Eyewear retailers
  • Tax services
  • Childcare centers
  • Legal services
  • News media
  • Janitorial services
  • Home health care
  • Dry cleaners
  • Lawn and housecleaning
  • IT support
  • Carpet cleaning
  • Pet supplies
  • Hardware stores
  • Tutoring
  • Gems
  • Real estate
  • Printing
  • Long hair embroidery services
  • Play places
  • Sign stores
  • Battery stores
  • Coffee shops
  • Garage door repair
  • Computer repair
  • Cell phone repair
  • Ice cream shops
  • Car rental
  • Leak detection
  • Window cleaning
  • Plumbers
  • Home inspection
  • HVAC repair
  • Travel agency