It’s a big decision to start your own business. Many people invest in business format franchises because it makes for a business that has support and is based on a proven system. If you are thinking of starting a business, a business format franchise could be the perfect choice for you. So what exactly is a business format franchise? In this article , we will help to define it, covering how it works and why it can be a perfect choice for many entrepreneurs.
What is a Business Format Franchise?
A business format franchise is a franchise type in which everything from branding, business models to marketing strategies are owned by the franchisor (the company that owns the business). They give you all the tools, resources, and support required to run the business under their name successfully.
In simple terms, you will buy a business format franchise to acquire a system name and a business model; all systems and rules imposed by the franchisor must be followed. This reduces a lot of risks in starting such a business without actual capital investment.
The Basic Characteristics of a Business Format Franchise
Brands
The Franchisor has a nationally recognized brand that already has customers. For instance, if you buy a McDonald’s franchise, you are leveraging the McDonald’s name, brand, and reputation. That makes it easier to attract customers, since people already know the brand.
Business Model
The franchisor provides you a business model that has been tried and tested. This is what they offer: a ready-made method, that has worked elsewhere. You don’t even have to devise your own plan; you just follow what the franchisor has made for you.
Training and Support One of the greatest benefits of a business format franchise is the training and support provided. Franchisors equip you with know-how and know-what in order to operate the business successfully. This can be as everything from employee training to information about your products and marketing tips.
Marketing and Advertising
The franchisor frequently takes care of advertising and marketing for the entire franchise. In other words you’re getting national or even global marketing for free. Folks, this just makes it easier for you to get customers.
Franchise Business Operations
Business format franchise operations have a chain of procedures you have to adhere to. Believe me: you’ll be on the same page with other franchisees when faced with such things. How to make a product, how to serve a customer, how to clean the store — everything will become standardized.
How Does Business Format Franchise Work?
These franchises entail the fact that you end up buying a business model along with the name. Also, you have to agree to follow the following regulations, guidelines, and rules set by the franchisor:
Running the Business: The franchisor gives a thorough outline for the management of the business including hours of operation, customer service policies, and employee policies.
Use of Brand: You are allowed to use the name, logo, and trade mark of the franchisor, but all this has to be done according to certain strict norms regarding brand display to ensure that the brand remains the same across locations.
Product/Service Standards: These are the same products/services as offered by other franchisees. For example, you open a particular Starbucks franchise but can sell neither more nor less coffee drinks and food items than other Starbucks outlets.
Continuing Fees: Also as a franchisee, you are entitled for payment of continuing fees to the franchisor. These may range from initial franchise fees (the cost to buy into the franchise) to royalty fees (a percentage of your profits) to advertising fees (a contribution to the franchise’s advertising fund).
Compliance: You must also be compliant with all the legal and operational standards as designed by the franchisor.
Advantages of Business Format Franchises
There are many benefits of owning a business format franchise. Here’s a few things for you to consider:
Minor Risk: What one of the main reasons that people go for a franchise is that there is lesser risk involved. Entrepreneurship can also be like playing a game of pin the tail on the donkey: launching a business from the ground up is a risky business. A business format franchise is a business model that has proven itself to work for other franchisees, and when you, as a franchisee, buy in to that model, you buy the right to use the trade name of the franchising company.
Brand awareness: When opening a franchise, you are coming into a brand that is already established. Because customers already trust the brand, you are able to pull them in quicker. This is a big plus when comparing to building a business from scratch with a non existing brand.
Support: Business format franchise provides the support of the franchisor. They offer training, marketing support and often support for site selection and hiring. Such support can mean the difference between success and failure.
Tested Frameworks: Franchises have invested a number of years into developing their business model. They’re students — and teachers — of what works head to head. You’re leveraging these tested systems when you purchase a franchise. No need to work it out on your own.
More Access to Financing: If your franchise is a success – and many are – financing may be easier to obtain. Banks and investors are often more comfortable lending money to someone who’s opening a franchise than to someone launching a new business from scratch.
The Challenges of Business Format Franchises
Although there are significant advantages that accrue to a business format franchise owner, there are some challenges. Here are a few key considerations :
Initial Investment: The franchise requires considerable initial investment. This encompasses the franchise fee, the cost of starting up a business format franchise, and the hire of any equipment or supplies required. Depending on the franchise, it may range anywhere between a few thousand dollars to hundreds of thousands of dollars.
Periodic Fees: There are periodic running fees, in addition to the initial investment. The royalty fees and advertising fees fall under this category. These fees might drain a share of your profits, so understanding them is essential prior to making an investment.
Lack of Control: A franchisee must follow the franchisor’s regulations and operating procedures. This restricts your right to make decisions autonomously. If you want to control your business totally, a franchise may not be right for you.
Competition with Other Franchisees: Generally, with several others being franchisees, there might be a competition between franchisees. This will cut into your sales if your location is less populated as opposed to others.
Brand Business Format Franchise Examples
If you’re thinking of opening a business format franchise, some success stories can help inspire your decision making. Many other brand franchise development have done so successfully, providing new and existing entrepreneurs with a chance to open a franchise business. The following are some examples of well-known brand business format franchises:
McDonald’s
Industry: Fast Food
Founded: 1940
Global Reach: McDonald’s is one of the most internationally successful and recognizable franchises, with thousands of locations in more than 100 countries.
McDonald’s Franchise Model: McDonald’s works on a business format franchise model where franchisees are given access to extensive operational procedures manuals, training programs, and marketing materials. McDonald’s franchisees must closely follow the chain’s operational protocol and standards to maintain the uniform quality of food and service and consistent portrayals of the McDonald’s brand at each location.
Why It’s Successful: McDonald’s franchisees benefit from the company’s strong brand, global reach, and robust marketing campaigns. But the upfront investment is large and there is an ongoing charge like royalty payments, but the support and guidance of McDonald’s makes it appealing to many people.
Subway
Industry: Fast Casual Dining
Founded: 1965
Worldwide Appeal: Subway has more than 40,000 restaurants across 100-plus countries.
Franchise Format: Subway is a business concept franchise with a flexible format. It is training on how to run a store, on marketing the product, on customer service. Franchisees are provided with the tools to operate their stores as per Subway’s norms.
Why It Works: Subway’s business model franchise is appealing in part due to the relatively low investment needed compared to other fast-food chains. And its franchise operation Is a vehicle for entering the food service field easily and with a menu of many items. Subway also has strong brand awareness, which should make it easier to draw customers.
7-Eleven
Industry: Convenience Stores
Founded: 1927
Global Presence: One of the world’s largest convenience store chains, 7-Eleven has over 70,000 outlets in 17 countries.
Franchise Model: 7-Eleven offers franchisees a business model made simple – from store setup through to stock control etc. What ongoing support do you provide franchisees in terms of operations, marketing, finance, etc.? 7-Eleven manages many aspects of the supply chain as well, which frees franchisees to concentrate on running their stores.
Why It Works: 7-Eleven’s model works well because of the focus on convenience that casual retail thrives on, with a selection of goods geared for a busy, in-transit lifestyle. The brand is well neither recognized and has a loyal group of customers making it successful from the start. Franchisees for 7-Eleven can also take advantage of the brand’s strong training and operational support.
Dunkin’
Industry: Coffee and Donuts
Founded: 1950
Large Footprint: Dunkin’ (formerly Dunkin’ Donuts) has more than 12,000 outlets around the world, with most in the United States and international.
Franchise: Dunkin’ offers a simple franchise model centered around its coffee, donuts and other fast-serve menu options. Store Operations Staff Management Marketing Multiple Revenue Streams! Dunkin’ also handles supply chain management to bring consistency to stores.
Why It’s Franchitastic: Dunkin’ Donuts is a recognized brand and the breakfast/coffee niche, without a doubt, has thousands of customers each day. Franchisees profit from strong demand for Dunkin’s coffee and pastries, and the company’s marketing campaigns help drive traffic.
The UPS Store
Business: Ship and Print
Founded: 1980
Global Reach: The UPS Store is present in more than 5,000 locations in the U.S. and Canada.
Franchise Description: The UPS Store franchise program is a service, and equipment (packaging, shipping, copying, printing and other related business service center) franchise program. The franchisee will receive comprehensive training including support with marketing, tech systems, and operations. The company also offers help with site selection and financing to its franchisees.
Why It Works: The UPS Store is on the list because it serves small businesses and consumers through more than 4,900 locations offering a variety of services. Franchisees can also serve their local communities by offering shipping, printing and mailboxes, a turnkey business. In addition, UPS’ well-known brand and reputation of service that is dependable are a lure for customers.
Why Do These Brands Thrive As Business Format Franchise Models?
A common thread binding the said brands is their capacity as proven replicable successful business models-in-context to multiple markets and locations. Each of the franchisors offers:
Complete Training: Franchise training makes sure that the franchise knows how to do the business operations smoothly. It could include customer service, inventory handling, or marketing activities. Training for the successful operation of business processes has been provided to his/her franchisee.
Brand Recognition: Such companies have popular brands and franchisees share in the great work that the companies did to create trust among the customers. Already built reputation facilitates attracting and retaining customers to the franchises.
Marketing Support: Most of the franchisors will even offer national and local marketing aids to their franchisees. This will drive customers into franchised locations and will plant these names in the customers’ minds with regards to thriving in the community.
Standardized Operations: It will be very easy for the franchisee to operate because operation procedures are well laid down. Food preparation to customer service each operation is standardized making error minimal.
Post-Support: The franchisee gets not only the rights to conduct a franchise but support throughout one’s life as a franchisee. This includes site selection assistance, all training, and assistance in overcoming any operational issues that a franchisee may face in managing his or her own business.
What is the definition of a business format franchise?
Under business format franchising, the franchisor provides the franchisee with an entire business concept that typically includes everything from the actual goods or services and branding to marketing, training, and ongoing support. The franchisees have the advantage of operating the business on the franchisor’s system, name, and brand.
What are the challenges faced by the buyer of business format franchises?
The possible issues are huge initial investment, continuous royalty and advertising fees, little control over business operations, competition from other franchisees, and stringent observance of the franchisor’s guidelines and procedures.
Can I own multiple business format franchises?
Yes, many entrepreneurs own multiple franchise locations. However, franchisors typically require franchisees to demonstrate a successful track record in managing a single location before granting approval for additional locations.
How marketing and advertising work in a business format franchise varies?
Typically, franchisors provide marketing support at a national or regional level to attract customers to all franchise locations. Franchisees might be obligated to pay marketing fees to further such efforts while maintaining consistency in brand messaging across all locations.
How can I determine if a business format franchise is right for me?
A business format franchise may be a good fit for you if you want to benefit from a proven, supported business model with an established brand. It’s also ideal if you’re comfortable following strict operational procedures and enjoy having the support of the franchisor in areas like training, marketing, and site selection. However, if you prefer full control and flexibility, it might not be the best choice.