Examples of franchising in the world. What is a franchise in business: definition and examples. Main types and types of franchises

What does the word “franchise” mean in business (what is it in simple words)

The concept of “franchise” used in Russian comes from the French word franchise, which means “benefit”. Purchasing a franchise allows an entrepreneur to enter the market on preferential terms, investing a minimum of effort in the development of his company and finding loyal customers. However, concluding a franchise agreement entails certain material costs on the part of the entrepreneur. That is why, when deciding whether to use this approach, it is important to first understand what a franchise means in business. First of all, you need to familiarize yourself with the basic terms used in this area.

Franchising is a type of market relationship in which one party (the franchisor) grants the other (the franchisee) the right to conduct a certain type of business using the concept of its implementation developed by it.

A franchise is the object of a franchise agreement, which represents the right to use trademarks, production secrets, reputation and other benefits. The peculiarity of such goods is that they belong to the franchisor and are widely known among certain categories of consumers.

The essence of the franchise

The essence of a franchise as a mechanism for doing business is extremely simple: one party, which has a certain reputation in the market, work experience, as well as exclusive rights to use a set of intangible benefits (for example, production secrets), enters into an agreement with the other party, which wants to use the available opportunities and benefits. At the same time, the brand owner receives additional profit from the franchisee, as well as an increase in the popularity of the product and its promotion in new markets (for example, if the franchisee opens the first point in a region in which the business was not previously represented).

A striking example of franchising is the fast food chain McDonald's, which is successfully operating in Russia, whose restaurants have been opened as franchises since 2012.

How does a franchise work in business?

To start working on a franchise, you must enter into a written contract with the selected franchisor. It will need to indicate:

Rights and obligations acquired by the parties.
The procedure for paying a fee for using a franchise.
Detailed terms of cooperation. This clause may take up more than one page of the agreement, since the parties will need to agree on the slightest nuances of interaction (down to the requirements for the appearance of the premises).
Fines for failure to comply with established conditions.

The procedure and rules for drawing up such an agreement (in the civil law of our country it is called a “commercial concession agreement”) are established by Art. 1027 and 1028 of the Civil Code of the Russian Federation.

There are the following types of franchise agreement, the principle of operation for each of which differs significantly:

Don't know your rights?

Straight. In this case, the franchisor can open only 1 enterprise and only in the place determined by the provisions of the agreement.
Multifranchise. In this case, the franchisor undertakes to open a certain number of retail outlets or service points within a certain time.
Master Franchise. When concluding such an agreement, the franchisee assumes the obligation to sell the franchise in a certain territory, i.e., he himself becomes the franchisor.

Violation of the regulations established by the agreement entails the imposition of various penalties and fines on the entrepreneur, the amount of which is also determined by the concluded agreement.

So, we figured out what a franchise is and how it works in business. Next, let's talk about how it is paid.

How to pay to use a franchise

You will have to pay for the opportunity to do business under a well-promoted brand. There are 2 main methods of payment for services under a franchise agreement:

Royalty is a monetary contribution paid at a certain frequency, such as once a month or quarterly. Its size may be fixed, or may depend on the amount of profit/revenue received by the businessman. This approach is used if the franchisor is a large company with a solid turnover and a large number of consumers.
Lump sum payment. This fee is paid by the businessman once - at the time of concluding the franchising agreement. In this case, the owner of the rights to the trademark used by the businessman will not have to control cash flows. Using this scheme is the most profitable option for small companies.

Often in practice, these methods of mutual settlements are combined. For example, a franchisee pays its partner a small lump sum fee and then makes regular cash payments as royalties during the course of the business.

What does a franchise mean for business development?

The use of the franchising mechanism is of great importance for the development of the market as a whole. The use of this technique allows us to expand the range of products offered to consumers in the regions. Due to the lack of sufficient funds, local manufacturers cannot independently provide a decent level of service, product quality and other factors that are decisive when a consumer chooses a particular product or service. The use of technologies created by large corporations makes it possible not only to gain the trust of consumers and expand sales markets, but also to offer them a product with special characteristics.

For example, by opening a franchise store of high-quality watches from a manufacturer, a businessman can fill a niche previously represented by cheap products made in China. By offering a choice to customers who previously ordered such items from online stores or purchased them in other cities, it will not only satisfy their existing need, but will also bring additional profit to the manufacturer.

Pros and cons of purchasing a franchise

When deciding to enter the market using a famous brand, you need to weigh all the pros and cons of using a franchise.

The advantages of this approach to running your own business are:

Significant reduction in advertising costs: purchasing a franchise involves obtaining the right to use a trademark that is familiar to the vast majority of consumers and has a positive image in their minds.
There is no need to independently develop a business strategy and promote a product/service on the market: the franchisor company will provide a ready-made marketing program, following which will attract customers and generate income.
Legal, consulting, organizational and other support from the franchisor at all stages of doing business.
Minimizing the risks that may arise not only when entering the market, but also during the further development of the business: the conditions created by the franchisor make it possible to avoid many difficulties that start-up businessmen face (for example, partners are often provided with an established database of suppliers, assistance in registration premises, selection and training of personnel, etc.).

However, working under a franchising agreement also has disadvantages:

The cost of some types of franchises can be quite high.
Since the business is conducted under a well-known brand, it is necessary to coordinate all decisions with the franchisor and create all the conditions to preserve its reputation, which does not allow for almost any amateur activity.
Sometimes the franchisor obliges a businessman to purchase consumables, products and other items required for business strictly from certain suppliers.

Thus, using a franchise is an approach to running your own business, which involves concluding an agreement, one party of which is the owner of a certain good. Moreover, it is assumed that this benefit (know-how, trademark, commercial solution, etc.) can bring profit. The second party to the agreement here is a businessman who is ready to use this benefit for the purpose of conducting business. The possibility of working under such conditions is legalized by Art. 1027 of the Civil Code of the Russian Federation, which determines the essence of the commercial concession agreement.

Today, running your own business won’t surprise anyone. But, as a rule, only a few entrepreneurs realize that their business does not have to go through all stages of development, but can take an easier path. For example, rent it and make a good profit from it.

What is a franchise in simple words?

Translated from French, this is a benefit that provides a set of documents and rights to use a business.

What is a franchise can be explained in simple words like this: obtaining the right to use a leased trademark to sell your own goods, which is regulated by a special agreement.

In order to become a participant in the franchise system, it is necessary to conclude a franchising agreement with the owner of the selected brand; this is a licensed document under which the copyright holder undertakes to provide the user for a fee with the right to use in his activities a set of exclusive rights, business reputation and commercial experience belonging to the owner.

Based on this, we should take a closer look at some key points, namely, the concepts: franchisor, as the owner of exclusive rights to any idea or brand, and franchisee, which means that this is a person or company who wants to buy the opportunity to use this brand or trademark.

How does it work

Working according to this scheme has its own specific specifics and features, so the entrepreneur must first become familiar with the main rules, “pitfalls” and everything else that franchising has in store for him, which means, in simple words, the purchase and use of already accumulated commercial experience. As a rule, the franchisor does not always show the user a real picture of the functioning of its divisions, and the user is not always able to accurately determine the profitability of the chosen business.

The right decision for franchisees would be to familiarize themselves with the work of existing outlets and conduct a conversation with other users of the proposed rights (brand). Alternatively, you can request from the franchisor planned and operational information about the work of one of the divisions.

And when the entrepreneur finally makes a decision, having familiarized himself with franchising in detail and weighing all the pros and cons, then he should turn to a well-established franchise scheme and thoroughly understand what it is.

the franchisor puts its services on the market until a buyer is found who agrees to them;
then the franchisee makes the first payment, this gives the franchisor a certain guarantee that the acquirer will continue to work in this direction and achieve success under the leadership of the seller;
the franchisor provides the user with all its production principles, technologies, business plans, market developments, details of counterparties, etc.

Franchise and franchising: what is the difference

As you know, franchising and franchising are interrelated concepts and there is no essential difference between them. But in order to better understand some of the differences between these concepts from each other, it is worth looking at the term franchising itself and understanding what it is in simple words.

This is a legal agreement between legal entities and/or individuals, within which the franchisee receives from the franchisor official permission to use the brand, trademark, goodwill and official style for their commercial purposes. This deal is mutually beneficial.

To put it even more simply, a franchise is an already established business model that an entrepreneur buys from its owner, and franchising is, as mentioned above, a certain category of contractual relations and the conditions corresponding to it.

Pros and cons of starting a franchise business

Like all contracts and agreements, working under a franchise has its advantages and disadvantages:

The advantages are:	The disadvantages are:
high speed of promotion of your own business;	strict adherence to the rules and adherence to the policies of the main company;
recognition of the leased brand;	inability to bring your own concept and ideas into the business;
no money is spent on promoting your business;	possible fines for violating any agreements;
ready business plan;	high cost of the project (lump sum and royalties);
centralized advertising campaign;	if the owner goes bankrupt, all contracts will be transferred to new people who can put forward their own new unprofitable demands.
the opportunity to learn and receive support from a large corporation.

Statistics say that in the first 5 years of their operation, 85% of ordinary small businesses close, and 14% function successfully, hiding “under the wing” of a large brand.

How much does a franchise cost?

The cost may be determined by several significant factors. It directly depends on the fame of the chosen brand and its popularity. The smooth running of business processes in the enterprise and the positioning of this network in the market are also taken into account.

Before purchasing, you should definitely enlist the support of experienced lawyers who can thoroughly study the drafted contract. After all, the terms of such an agreement will most likely not be very beneficial for the franchisee; it will maximally comply with the wishes of the franchise owner.

Franchise exchanges are special sites for purchasing these services. The buyer is provided with directories in which they are organized by categories and prices. But such sites are divided into 2 types. Some provide the opportunity for the buyer to evaluate proposals independently, while others offer expert opinion, legal support and other consulting services.

Franchising in certain areas

In simple words, a franchise is certain transferable rights provided for by an agreement between two business entities, and according to which the franchisee, for a certain amount, leases in order to use for profit the brand of the franchisor, who is its owner.

In business

This article offers a detailed explanation of what a franchise is in simple words and how to acquire it, because while you are developing your own business, many years may pass, and it is not a fact that you will be lucky enough to take at least some place and not disappear. Therefore, a ready-made business under such an agreement is a completely justified step for beginning entrepreneurs.

Opening a franchise business, with an explanation of what it is, means concluding an agreement that not only provides rights to the businessman, but also obliges him to fulfill certain conditions specified in the agreement for the very conduct of the business.

In trade

When moving to another area of business, you need to follow a franchise agreement, which gives a clear idea of what it is already in trade. Here, this is a contractual form of mutually beneficial cooperation, according to which an entrepreneur who has purchased the rights to a well-known trademark exploits it when selling it on his retail shelves.

45% of the Russian market is accounted for by trade, so this transaction is especially popular. It allows its user to get rid of many issues: marketing, organizational, strategic.

commitment to work only with existing methods;
the risk of acquiring an ineffective brand, which will cause the business to become unprofitable;
supplies of goods always go through the franchisor’s suppliers;
In order to exit the business, it is necessary to pay compensation to the counterparty.

In insurance

Various types of insurance have long gained quite high popularity among the population. It is interesting that the use of this benefit when taking out various insurances has become a fairly convenient mechanism that can significantly reduce the costs of the policyholder and save the insurer’s resources when indemnifying losses.

So, let's talk about the deductible in insurance and try to explain what it is in simple words. This is the name of the amount of insurance that is not paid when an insured event occurs. That is, if the beneficiary is the policyholder himself, then he will not receive the compensation that was stipulated by the franchise, and if the benefit should be received by a third party, the policyholder will be obliged to cover his losses within the agreed amount.

When concluding an insurance contract or purchasing an insurance policy, it is extremely necessary to find out the size of the franchise, its type (conditional, unconditional) and the method of its calculation.

At first glance, it may seem that in insurance this is beneficial only to suppliers and serves to protect only their interests, but there are also advantages for policyholders, and not bad ones. If insurance contracts were concluded without these conditions at all, they would be significantly more expensive.

And so the policyholder is usually offered a network of tariffs and deductibles, and he can choose the most profitable option for himself, and if he receives minimal damage, which is within the selected framework, the policyholder is freed from going through a complex documentation procedure to receive compensation. He simply does not waste his time and energy on it.

From all this it becomes clear that receiving compensation for small losses is unprofitable for both parties to the insurance contract, which is why the franchise was created.

In auto insurance

Any car enthusiast has encountered this concept at least once, and this most likely happened when drawing up a CASCO or MTPL insurance contract. What is a deductible, in simple words, in car insurance can be defined as follows - it is an exemption from covering losses of the insurer that do not exceed a certain amount. In other words, this is the amount that the insured client will need to pay in the event of an accident, and the rest of the damage will be covered by his insurance.

conditional
and unconditional.

With conditional insurance, insurance is paid only when the amount of damage is greater than the deductible, but the insurance payment is reimbursed in full. And with unconditional insurance, the amount of the deductible will always be deducted from the insurance compensation.

Very often, disagreements arise between car owners and insurance agents, due to the fact that the latter do not always explain to the former precisely and in detail what a deductible actually means and what type is used in their contract.

The conditional option is offered very rarely; in most cases, insurers mean unconditional in contracts, that is, when the insurance payment is always made taking into account the deduction of the deductible. To avoid such unpleasant misunderstandings, you always not only need to carefully delve into the proposed insurance contract, but also directly ask the agent himself what type of service is provided to you.

Types of franchise

How to choose the right one

Choosing the right franchise so that it brings high income and is simply to your liking is quite possible.

How long has the company been on the market?
What is the growth rate of his business?
How do you deal with temporary downtime in business?

You can hardly trust a seller who seems to be happy to conclude a cooperation agreement, but at the same time is in no hurry to share any information about his partners and their successes. It is also worth requesting all legal documentation confirming the official ownership of the trademark, and studying all patents that give the right to this type of activity.

An alarming signal here may be that the franchise is being promoted by a young company that does not yet have a single store or enterprise.

And of course, before you start signing the contract, you need to study it carefully, best with the help of an experienced lawyer. Choosing and purchasing a franchise correctly will not be difficult if you follow these simple recommendations.

Popular examples

The most successful franchisees are closely connected to people's everyday needs. The most popular franchises in Russia are such brands as McDonald’s, Lukoil gas stations, the mobile operator MTS and the well-known Pyaterochka chain of stores. And these are just a few examples of successful activities; in fact, there are many more.

Structure of Russian franchising by industry

It is interesting to see in which areas of activity franchises are most in demand:

Non-food retail
Services to the population
Public catering
Business services
Food retail
Production
Media, Internet
other

43%
23%
14%
7%
4%
3%
3%
3%

Franchising is one of the most effective forms of organizing a small business at present.

It provides for the possibility of leasing a trademark, using the skills and experience of a larger, already successful company.

Franchise concept

Business franchise

According to statistics, a small business started as a franchise is many times more successful and has opportunities for development than a small business started from scratch.

In cases where novice entrepreneurs are afraid to invest start-up capital in ideas that have not yet been promoted and strive to establish a business based on already proven schemes, they resort to franchising.

Product and brand franchise

Such a franchise implies the possibility of manufacturing products under an already well-known brand.

Some of the most striking examples of global companies that at one time gained fame by providing product and brand franchises are McDonald's, Soca-Cola, PepsiCo and many others.

Famous franchise brands

Franchise operating principle

Franchising combines forms of small and larger businesses. More precisely, larger and already experienced companies (hereinafter, franchisors, the so-called “parent companies”) enter into contracts with newly minted entrepreneurs (hereinafter, franchisees — subsidiaries) for a long period of time.

These agreements provide franchisees the right to implement and promote one’s business activities on an already established basis(on behalf of the franchisor). At the same time, as a rule, the concluded agreements quite clearly define the duration of the contract, the form in which small enterprises conduct their activities and the specific location for the implementation of these activities.

For the successful establishment of a subsidiary, franchisors give recommendations on the best organization of its activities: what equipment to use (under what conditions: purchase at better prices, rental, etc.), what qualities and professional skills the personnel (employees) should have, can contribute supply of customer-supplied raw materials, semi-finished products, blanks, provide information support, undertake partial material support, monitor the implementation of business plans.

Therefore, as a rule, the concept of “franchise” in business refers to a company created and regulated on a franchising basis (when the company operates under the rights of a larger company or on behalf of this parent company).

When concluding a franchise cooperation agreement, both parties to the agreement have their own benefits. For aspiring entrepreneurs, the benefit is the ability to build on the experience already gained from a larger company. In turn, a larger organization (franchisor) has the opportunity to expand the sales market for its products, increase production capacity and turnover by opening new companies (branches) - franchises.

Currently, almost all areas of small business can be organized as a franchise: service sector(restaurants, hotels, hairdressers, studios, shops), small production(tailoring, food production, production of any spare parts), etc.

Pros and cons of such a business

When concluding franchise agreements, you can determine both the advantages for subsidiaries and some disadvantages.

As previously mentioned, the advantages include:

support from a larger company in the information and raw materials sectors;
the opportunity to use its technological and design developments, experience in organizing a business and the possibility of receiving additional financial investments into a developing company;
For this type of entrepreneurship, many banks provide the possibility of preferential lending;
In addition, in the case of using the trademark of a large brand, a novice entrepreneur has the opportunity to save a significant amount by eliminating the need for marketing expenses.

The disadvantages include:

the impossibility of refusing to fulfill previously concluded agreements on any production stages, rules for the sale of goods or services of the franchisor;
Some of the agreements may individually include additional costs for franchisees for the use of a trademark, equipment, or mandatory consultations and monitoring of compliance with the terms of the agreements by the franchisor’s specialists.

How can a beginner choose and start a franchise business?

In order for a novice entrepreneur to decide on his franchise business idea, he needs to consider the following:

Rule 1. When choosing the field of activity of a future company, it is advisable to rely directly on your personal preferences for a particular field. As a rule, if your occupation is close to your spirit, then it will be much easier to navigate the company’s emerging difficulties and methods for eliminating them.
Rule 2. Before opening a franchise business, you need to decide on the territory that will be covered by the range of your services. This is a rather important stage, since it makes no sense and practically minimizes profits for two or more franchise companies with contractual obligations of the same franchisor to be in the same territory.
When negotiating the terms of the agreement with the parent company, it is best to include clauses that exclude the possibility of it providing franchising to companies planning to develop in the region of your choice (such agreements are also called master franchises).
Rule 3. If possible, try to familiarize yourself with the financial statements of the parent company's partner companies. This information, as a rule, is not publicly available, but if both parties are interested, approximate figures for the profitability of the enterprise can be announced. This will help you navigate the correct choice of the franchisor company and the real risks of unprofitability of your company.
Rule 4. If you have already finally decided on the choice of the franchisor company and are ready to enter into an agreement, you need to pay special attention to the documentary basis of the agreements.

It is necessary to take into account that franchising is a complex partnership relationship, regulated by the terms of the agreements, which must certainly be spelled out (in full, in the most detailed and unambiguous form) in the clauses of the agreement you sign.

Compliance with this recommendation will help you defend your case in the event of controversial situations with the franchisor. Please note that if you do not agree with any of the clauses of the contract, you have the right to ask for it to be changed, or try to find a compromise option for implementing this clause (all these changes must be made to the contract before it is signed. )

If your future partner refuses to make the changes you propose, and the terms of the agreement are not regarded by you as feasible, then it is better to refrain from signing these documents.

From the following video you can glean useful information about choosing a franchise:

What investments are needed to open such a business?

If you have already decided on the field of activity and the franchisor directly, you must take into account that in addition to the costs of business franchise (and offers without starting investments are very rare), a number of expenses will fall on your shoulders to ensure the life of your company.

Such expenses should include:

the need to pay rent for the premises in which your company will be located (including payment for utilities: electricity, gas, water, housekeeping services);
the cost of processing documents granting the right to conduct activities (licenses, certificates of conformity, permits, patents);
equipping the enterprise with the necessary inventory and equipment (furniture, organizing a kitchen area for staff, office equipment, fire extinguishing equipment: fire extinguishers, etc.);
monthly provision of the enterprise with applied products (hygiene products, paper, light bulbs, consumables and cleaning products, etc.);
logistics (rent or purchase of transport, gasoline, etc.);
expenses for marketing materials (television advertising, brochures, business cards);
expenses for wages of employees, service personnel (including mandatory contributions for each employee to the pension fund, social security);
taxes on company profits or payment of a single tax;
payment for services of state regulatory organizations;
insurance payment;
payment for cleaning company services;
payment of possible penalties in connection with failure to fulfill any obligations to the franchise company;
payment for the services of legal and notary organizations when concluding contracts;
payment of fees, interest and possible penalties under loan agreements (if bank funds taken on credit were used to organize the company).

All these expenses amount to a fairly significant amount, which must be taken into account and included in the expenses of the enterprise when drawing up a business plan. Only after weighing all the pros and cons, as well as calculating as accurately as possible the size of the company’s expected turnover, its actual income and expenses, can you finally decide on the advisability of registering a franchise business.

When a person opens his own business, he has to face many problems - promoting a brand from scratch, developing technologies. In such conditions, it takes years to achieve a decent result. But at this time, competitors do not stand still, as the heroine said Carroll, « to stay in one place, you have to run" That is why everyone who knows what a franchise is and how it works tries to compare the possibilities of a franchise before investing a lot of money in their business.

What is a franchise and how does it work? How to buy a franchise and what typical mistakes do entrepreneurs make? We will try to provide as complete information as possible.

What is Franchise in simple words

Franchise- This is when enterprises with proven technology and a well-known brand allow other companies to use their name. In addition to the name, they also transfer other knowledge, such as production technologies, corporate standards, patent rights and inventions. This is the definition of a franchise in simple words.

The first company that comes to mind when we hear the word “franchise” is McDonald's, but franchising has much older roots. Isaac Singer, inventor of the famous sewing machine Zinger, in 1858, pioneered the concept of franchising. He began selling licenses to distributors in different parts of the country, providing them with his own product and training staff.

According to the formal definition, a franchise is permission to a legal entity or individual to use the benefits franchisor. In this case, the one who acquires this right is called franchisee, and the whole business model is called franchising.

Sometimes this right is transferred free of charge, but more often franchisee obligated to pay for the benefit received. The fee is divided into two parts:

Lump sum payment. A one-time amount that is transferred upon concluding a franchise agreement.
. Monthly or annual payment.

Each franchisor company develops its own conditions, which may differ significantly.

In Russian legislation there is no concept of a franchise. Chapter 54 of the Civil Code of the Russian Federation introduces the definition of a commercial concession, according to which the rights holder transfers a set of benefits.

The aforementioned fast food restaurant chain owns less than half of 36,000 restaurants; most are open under franchising conditions. grants the right to use its famous brand, logo, menu, and so on. Businessmen who own restaurants, in turn, pay fees (royalties), which are calculated as a percentage of sales.

This is the basic trade-off in a franchising relationship. Franchisor ( in this example McDonald's) allows other people (franchisees) to use the business model and brand recognition, and in return receives a percentage of the turnover.

What is royalty and lump sum in a franchise?

One of the most frequently asked questions is how much does it cost to open a franchise business? You can estimate costs at the stage of choosing a franchise.

A down payment in the form of a fixed amount is called lump sum, periodic payments for continued cooperation – royalties.

In exchange for the right to use the franchisor's name, product or technology, some or all of the following fees are usually required:

Lump sum payment– an initial non-refundable franchise fee. The size of the amount varies greatly, but the tendency is this: the higher the degree of brand recognition, the more expensive it is to enter “under the wing” of a strong company.
are paid on a regular basis ( monthly or quarterly) during the term of the contract. A kind of membership fee, essentially. Fixed amounts or percentages of gross sales - options vary.
Tuition fee– some franchisors include training in the lump sum price, some include it as a separate line item.
Advertising fees contributed to the advertising or marketing fund of the parent company. This money is spent on TV and radio advertising, development and printing of POS materials (booklets, posters, leaflets).
Franchise renewal (renewal) – fee for renewing the franchising agreement.

Large franchisors often develop several schemes for entering a brand. Preliminary calculations of payback and profitability for a specific region are taken into account.

For example, the franchise 220 volt» is transferred free of charge, but the partner undertakes to purchase goods only from the franchisor.

Types of franchises

The word franchise translated from French means " benefit" As you know, there are different benefits. Depending on how different franchisors allow you to use their name and what they offer in return, there are three main types:

business franchise;
commodity;
production.

Business franchise

What is a franchise in business format? This is the most common type of relationship in which the franchisor offers an established business, including a name and trademark, to independent entrepreneurs. A good example of this type is fast food restaurants. The franchise catalog presents long-established brands - Papa Johns, Coffeeshop Company, and new ones – “ Food from the Champion", bar " Honey, I'll call you back».

The franchisee receives assistance from the parent company in the selection, layout and design of premises, recruitment and training of personnel, and development of the marketing component. Lump-sum fees and royalties vary greatly, sothat it is necessary to carefully look at the conditions of each specific company. This type of franchise is often called a “turnkey business”, since the franchisee receives almost everything necessary to open their own business.

Product franchise

The franchisee receives the right to distribute the product manufactured by the franchisor. Well-known product franchises are, for example, any other car manufacturer, some brands of clothing and shoes: Incanto, BAON, ALBA.

This type of franchising often involves no licensing fees. The franchisee is required to purchase a certain volume of the franchisor's product or range of products. And he provides national advertising campaigns, provides a logo and a trademark.

Manufacturing franchise

The manufacturer grants the right to produce and sell goods using its brand and trademark. This type is widely used in the food and beverage industry, for example -.

Another technical point that is important to understand when looking for a suitable investment idea. The rights that a franchise agreement provides vary greatly in one case or another.

What are the franchises?

Direct franchise– the franchisor grants the right to open one enterprise in a specified location. The oldest and simplest form of relationship. The disadvantage is this: if the franchisee has the desire and ability to open additional points, each time a new agreement and new cash contributions are required. That is, using the example of a clothing store: it is impossible to open another store without coordinating the issue with the parent company and without paying a lump sum fee.
Multi-franchise– the buyer receives the right and obligation to launch a certain number of production/sales locations in a certain territory for a fixed period of time.
Master franchise is similar to the previous paragraph, but has one significant difference: the franchisee receives the right and obligation on his own behalf to sell the franchise in the territory approved by the agreement. The master franchisee becomes the franchisor in his region.

Let us emphasize once again: in the last two versions of the franchising agreement, rights and obligations are provided.

If the franchisee does not maintain the contractual pace of development and expansion, this is punishable by: termination of the contract, penalties, transfer of exclusive rights to another businessman, etc.

In addition, there are the following types of franchises:

Free. The franchisee receives the right to use the brand, but his actions are not controlled by the owner of the rights.
Silver. In this case, the company opens a branch, organizes its activities and only after that sells the right of temporary use.
Golden. Transfer of monopoly rights to conduct business under the brand of the copyright holder in a certain region. The buyer of a gold franchise decides for himself how he will use the name and develop the business.
Import-substituting. This scheme is somewhat reminiscent of plagiarism. A businessman works in the country under the name of a well-known company, but does not pay royalties to it. How is that " Adidas" And " Abibas", the names are similar and there is nothing to complain about. However, such a business has nothing to do with the original brand.

The Civil Code requires that every commercial concession agreement be registered with Rospatent. In this case, the franchisor must first register its trademark and technology there. It is theoretically possible that McDonald's will miss the re-registration deadline, then any entrepreneur will be able to register it.

Almost every industry has successful, established business practices. Franchises of retail stores, beauty salons, fast food restaurants, manufacturing facilities and many others are for sale. For convenience, we have compiled some popular brands into a table - a mini-catalogue of franchises.

Famous pizzeria franchises

	Lump sum payment		Total investments	Payback period
Dodo Pizza	350 000	3-5%	3 000 000	1 year
Pizza Celentano	400 000 – 800 000	2%	2 000 000	1 year
Papa Johns	1 000 000	6%	10 000 000	2 years
Domino's Pizza	2 000 000	7%	15 000 000	2 years

In the pursuit of profit, it is important to strive not only for immediate benefits. Ray Kroc, the founder of the more than once mentioned McDonald’s chain said:

"If I had a brick for every time I said 'quality, service, cleanliness,' I think I could cross the Atlantic Ocean."

What should be in the contract

A typical franchise agreement consists of several hundred pages. About, what is a franchise in simple words It’s hard to explain, and it’s even harder to do it on paper. Therefore, without legal support, a businessman will not be able to understand the intricacies. For example, the Civil Code contains the following norms:

The duration of the contract does not have to be specified. But if there is one, we need to agree on the terms of the extension.
Only legal entities and individual entrepreneurs have the right to be parties to a contract; this is not available to individuals.
The agreement cannot be concluded in any form other than written.
The franchisor is obliged to teach its own technologies not only to the franchisee, but also to his employees.
The franchise buyer must comply with all requirements of the seller to ensure product or service quality.

The contract stipulates control technologies, be it secret shoppers, passing exams or visits from inspectors.

How not to fall for the bait

Upon entering the franchisor’s website, the visitor blossoms with delight. And the investments are minimal, and the support is comprehensive, they promise bonuses and entice with gifts. This is all located on a one-page website.

When it comes to signing a contract, a businessman finds a document in front of him on a hundred pages. This is not an exaggeration; this is exactly the size of a standard contract. Moreover, it was compiled taking into account the interests of the franchisor. The franchisee must take care of how the franchise works and how it protects him on his own. Even if at first glance the offer seems tempting, you should only believe the agreement written on paper.

When concluding a contract, it is worth engaging a lawyer; his fees will be repaid many times over in subsequent savings. If it will be difficult to make your own additions to a standard agreement with McDonald's, then you can insist on canceling or changing several points in an agreement with a lesser-known company without any problems.

What questions should you ask the franchisor?:

When did the franchisor start selling the franchise? If the franchise is young, and the results of the franchisee’s activities are not yet clear, this is another reason to think about it.
Is the business financially successful? Having seen the results of activity over the past three years, you can roughly navigate the prospects of your own business.
How many franchisees have closed? The percentage of successes and failures is not a theory of probability, but specific numbers that give an idea of the chances.
What support is provided? Assessing premises, training staff, calculating payback, advertising and promotion in a new region? What does the franchisee get besides the brand?

The short list of questions can and should be supplemented by questions that arise during the study of the proposal. And most importantly: business is not a statue carved in stone, everything flows and changes.

Pros and cons of a franchise

A business system that has been time-tested and tested more than once in different regions is the undeniable and main advantage of buying a franchise. Do you want to score big on your own or copy the experience of a successfully developing and competing company?

Arthur Bartlett, founder Century 21 Real Estate: “Franchise became the savior of free enterprise, it gave small businesses a chance to survive...”

Yes, franchising a business does reduce the risk of failure. Not as significant as the advertising brochures of interested companies promise, but still. US statistics confirm that 90% of independent business projects fail within the first three years.

Competing with large businesses as an individual entrepreneur is a difficult task. A recognizable brand and special terms of cooperation are an obvious advantage that a franchise gives.

“The world does not stand still. We don't deserve to be where we are if we don't stay ahead of the curve and take the necessary steps to remain competitive." Fred DeLuca, founder Subway.

The franchisor provides proven business technologies that are constantly being improved: advertising, marketing, administrative support. Lack of knowledge and experience is not a problem - the franchisor provides training for the franchisee.

In many cases, the franchisee receives exclusive territorial rights, a monopoly on the allocated area. Of course, under the franchisor's trademark. If the brand is successful and recognizable, it will “crush” competitors in the niche.

The sad fact is that some franchises achieve 80% failure rates, while others experience almost no failures.

Before signing an agreement, you need to carefully read the statistics: how many projects are successful, how many were closed. Communicating with the franchise owners is not the last thing; you don’t need to waste money and time on this point. OpeningFranchises may seem like an easy way to start your own business. But some factors are not striking, and the idea is so tempting that the potential franchisee steps on the rake of unsuccessful predecessors.

Franchising is not a flexible method of doing business. The features of a particular location, which the franchisee clearly sees and understands, are often not obvious to the franchisor. Make changes to the business format, offer additional discounts to customers, select products in accordance with customer tastes ( in a retail store, for example) – not always possible.

If an agreement is signed obliging the franchisee to expand the network, the business is obliged to work well and bring profit to the franchisor. Failure to comply with agreements is a reason for the franchisor to refuse cooperation without compensating any damage to the franchisee.

Instead of output

You can already understand what a franchise is in simple words - it is an agreement that allows one of the parties (the franchisee) to sell a product or service using a trademark, marketing strategies and technologies to the second party - the franchisor.

Franchising is a progressive method of doing business that benefits both parties.

During " catch the stream" And " collect the cream"on a new trend - the dream of any entrepreneur. However, here it is better to do the opposite. You need to look for a franchise that has already proven itself. Sustainable growth and a low percentage of failed franchisees are the only indicators you need to focus on.

Marriott, founder of a hotel chain: “My life experience shows that success is never final. We make decisions on the way to the final result.”

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A franchise, at its core, is a specific scheme of business relations between an established trade group (brand) and an individual entrepreneur (group of entrepreneurs) who want to open their own business. The specificity of the franchise is that the “newbie” receives the right to use a certain trademark in compliance with the conditions described in the contract. In fact, this is the purchase/rental of a ready-made business for a more or less long term. Anything that has any relation to the business can be rented, for example, food recipes, behavioral models, the same trademark and corporate identity in general.

What is a franchise in business?

Franchising is an excellent way to develop your own business without the danger of incurring losses, as evidenced by statistical data on the effectiveness of franchises: the five-year mark of business development is reached in a few months, while financial income (the profit of a novice businessman) remains at a high level. In simple words, working under a so-called franchise, you become part of a “promoted” business.

The only thing that is needed from the person who receives the right to use the trademark (from the franchisee) is to follow the instructions of the franchisor, conduct the business started decently and, of course, maintain sales by paying the agreed percentage of income to the second party of cooperation. The franchisor is the owner of the brand, providing a business model, as well as a style of behavior, first and subsequent consultations, and a license for some actions performed on behalf of the company.

To start your own franchise business, it is not necessary and you do not need to have extensive experience behind you or deep knowledge in this area, since you are buying it. All that is needed to start is a certain capital (money for contribution) plus premises that would meet the requirements of the franchisor. Next, monthly deductions will become necessary, usually 8% of the profit received per month. At the same time, a businessman working under a franchise will not have to independently calculate investments or budget, since the franchisor will do this for him, using his own experience and resources.

Please note that in Russian Legislation there is no such concept (word) as a franchise, however, there is a phrase similar to it, and this is “commercial compensation”.

What is a deductible in insurance?

The most convenient mechanism for ensuring reliable protection and guaranteeing the safety (insurance) of civil property or an organization is to obtain insurance for a certain amount through a franchise. In this way, it is possible not only to reduce the level of expenses of the policyholder, but also to save a considerable share of finances on the resources of the insurer (if there is a need to compensate for losses).

In general, an insurance deductible is a loss partially reimbursed by the client at his own expense upon the occurrence of an insured event. This is a measure (fixed percentage or amount) of the participation of the policyholder who has entered into the contract in the future (possible) risk.

Let's give a simple example. The mentioned document states the franchise amount is equal to 5%, which means that if an insured event occurs, estimated by the relevant authorities at 100 thousand rubles, the client will receive 95 thousand rubles from the insurance company, but the rest will have to be paid by himself (5 thousand rubles) . True, this is a general case, since franchises are different and much depends on the type chosen.

Franchising in the insurance business is especially beneficial, since it greatly facilitates “cooperation” with insurers (insurance organizations) if small damage has been incurred. And also because:

1. Money is saved when formal insurance is required (usually needed when applying for a mortgage in order to minimize the cost of insurance user payments).

2. Time is saved (on filling out a large number of unnecessary papers when minor damage is incurred in the event of an insured event).

3. The need for extra contributions is eliminated if the insured event never occurred.

4. The client who has issued a franchise receives a good discount on the same insurance policy. Its size can reach the size of the franchise itself.

The franchise is really beneficial for both parties: the policyholder and the insurer, as it reduces the amount of payments for client insurance and allows you to avoid having to deal with minor insurance cases.

What is royalty in a franchise?

Royalties are permanent (monthly) deductions paid to the franchisor from sales turnover. In fact, this is a fee for the brand, the use of specific technologies and other services provided by the trademark, if they are included in a special license agreement. Royalties are often charged as a fixed amount and generally depend on the type and characteristics of the business.

Why exactly “royalty”? The term itself comes from the English word royalty. This was the name of the fee levied by royalty on subjects for the right to own/use land or develop mineral resources. The word "royalty" can mean:

Fees.
Contributions for the development of the earth's depths.
Rental/License Fees.
Income (profit) or part of the product reserved to the owners of property (if he has granted ownership rights to it to third parties).

The “royalty” contribution can be calculated as the above-mentioned “share” of turnover, as well as dividends from the margin or in the form of a fixed payment, usually used by companies/firms where it is difficult to determine the amount of income (often depends on the total number of enterprises involved in the business, clients , as well as prices for franchising services). Franchisors who influence pricing, whether retail or wholesale, prefer the margin method of calculation, since it is most profitable when there are different markup levels for goods or services provided.

Is there any way to get rid of the need to pay royalties? There is a certain method. The purpose of its use is to more accurately determine the value of the (full) patent/license. The classic situation: the owner of the franchise decides to grant the buyer the right to exploit the intellectual property at a price consisting of a percentage of the businessman’s total revenue (this is royalty) from the sale of goods or from providing certain services to clients. So, for some time, the cost of that same intellectual property is equal to the cost of payments for the entire “service” period of the license or patent. In this case, the royalty amount is calculated based on information from the analysis of the selected market area.

What is a franchise in trade

A franchise in the field of trade means the organization of cooperation between a merchant and a large company to trade a branded product at its own sales outlets. This is beneficial for the franchisor due to the active expansion of the sales market and increase in turnover. At the same time, he will both demand and support (help with marketing, personnel training, purchase of special equipment, advertising, etc.).

For those who are planning to buy a franchise, we advise:
Work through absolutely all the clauses of the Franchise Agreement so that there are no discrepancies.
Consult a lawyer.
Clarify whether it is necessary to register the agreement with the NI (tax office).
Secure your right to be named and be the only representative of your chosen brand in the territory specified in the document.
Discuss the possibility of terminating the contract.

What is a lump sum fee in a franchise?

By lump sum we mean a one-time payment for the purchase of a business for rent for a long period. Thus, you confirm your rights to use the chosen trademark. Its size is set by the franchisor (company, organization providing the franchise).

Making a lump sum contribution is a kind of “investment” for the opportunity to enter the desired market, quickly develop, recoup and return the funds invested in the business. Its size depends on the amount of financial resources spent on the launch of a new franchise network facility, provided to the next participant in the service system, and on the popularity of the TM.

Important: a large amount of this one-time payment does not necessarily imply a guarantee of profitability (profitability) of the business. The best option is to stick to the “golden mean” and thoroughly study the franchising conditions, predicting further development. However, sometimes it is more profitable to pay a large fee, since then you will not have to keep your company afloat on your own, since in this case the franchisee receives a full range of services for starting a business and its support.

Franchise in cinema, films and games

This type of franchise is also called a media franchise. By it we mean an agreement on intellectual property: surroundings, original fictional characters, as well as consisting of other various objects of the universe in media works that have “captivated” the public, such as films, television shows, computer games, and of course books. These can be series of films, specially created sequels or prequels to these same films or branches of their plots.

The concept of a franchise in the field of cinema, films, games is quite different from what is meant in other business areas. In this case, the franchisee (“buyer”) can get the idea, the name, and much of the above. A franchise in the film industry is very, very profitable, since a new director can shoot a box-office film based on an already developed ideological line. At the same time, he can count on great demand, since the audience knows the brand used and the “world” it created.

The most successful movie franchises (if ranked by income and audience “love”) are the following films: “James Bond”, “Star Wars”, and “Harry Potter” (in just 13 years the film brought Warner Bros approximately 14 billion dollars) and the once sensational film “Twilight” (income from the American franchise amounted to more than $140.7 million), many others including “Pirates of the Caribbean” and even the fantastic “The Matrix”.

And in simple words, if you write a book, and someone wants to make a film based on it, then he will have to purchase a franchise, where you will act as the franchisor. The most popular franchise has become “Sherlock Holmes”; today almost everyone films it. Spin-offs are also given to franchisees. The most striking example is a separate cartoon about one of the heroes of "Shrek", and specifically about Puss in Boots.

The first place among the successful gaming media franchises in their entire history was the PC racing game "Need for Speed", starting with a series called "High Stakes", which began the integration and development of car tuning in the game process.

Casco franchise in car insurance

Anyone who has never encountered a force majeure situation on the road is truly lucky. However, a wise driver minimizes financial risks resulting from an accident. There is compulsory (MTPL) and voluntary insurance (CASCO) for the liability of citizens - car owners.

The first helps to cover the losses of third parties, excluding the case when the insured himself is found to be the culprit of the incident (here the guarantees of compensation for expenses spent on repairing the car or to compensate for financial damage are minimal). The second, CASCO, is issued upon request and guarantees the greatest protection for the motorist. By the way, SS in this case is considered: road accident, car theft, act of vandalism committed against a car.

You can reduce the cost of this rather expensive policy by using a franchise. However, when it comes to car insurance, it is not beneficial for everyone. It is recommended to purchase a franchise if:

The car owner plans to independently compensate for minor damage.
The driver is distinguished by his careful “behavior” on the roads;
The client has no desire to deal with minor road accidents.

You can apply for a popular CASCO policy in two ways: in full and with franchise conditions specified in the contract. These include:

A franchise is mandatory if there is a risk of complete “loss” of the car or a high probability of its theft.
The deductible amount is equal to 10th of the total insured amount in case of an accident (in most cases).
The cost of car insurance is inversely proportional to the deductible.

It is necessary to take into account that if the client demands compensation for damage received more than twice a year, the benefit from registering a franchise is reduced to zero. In the event of an accident with serious consequences, the client can receive money for repairs minus the agreed upon percentage of the deductible, or pay this money to the insurer and send the car for repairs to the insurance company’s service partner.