For many, franchising is a rather opaque concept.
Although Swedish and international commerce is filled to the brim with companies using the franchise method, it is frequently misunderstood. Therefore, we will clarify some of the concepts, from two perspectives.
The Franchisor’s perspective
It is common for the leader of a stable and profitable business to want to expand further and let the business grow. It could involve setting up a new store, factory or a new office. In many cases, this entails investing in a new place and letting an employee run the new venture.
For the one who wishes to expand, franchising offers a possibility to expand your business without making the investment yourself or having staff liability etc. Through packaging and offering your business idea to others, the owner can expand by means of franchisees that pay a fee for the access to the business idea and concept. This way, the franchisor can expand and/or protect the distribution of her products and/or make money solely from leasing the business idea. The franchisor can earn in several ways
- Entry-fee, an initial fee when the franchisee starts
- Franchise-fees or renting the business concept
- Mark-up on goods or services
- Taking a share of provisions and other earnings.
It is the franchisor that owns the business concept and offers it for rent to others.
The franchisee’s perspective
One who wants to start their own business can of course start from scratch and make their own mistakes. Alternatively, they rent a finished and demonstrably successful business concept. Franchising can be described as renting a tried and tested business concept, complete with instructions and continual guidance on running the business.
It can also involve complementing ones business with an new business concept. A chain of restaurants might want to complement itself with fastfood-franchise. An insurance company might want to expand its product portfolio and rents a concept of another insurance company.
Franchising is also a mode of cooperation between independent parties. The one, the franchisor, owns a successful business concept and leases it to a franchisee. A second, the franchisee, has her own company rents the concept of another, and forms a link in a chain that uses the same business concept.
What is the difference to other forms of chain? Read more at “Other forms of cooperation”