Franchising is a term that we hear very often nowadays, but what is its purpose? In order to define the purpose of a franchise, let’s first shed some light on what a franchise is in itself.

What is a franchise?

Franchising is the method of distributing goods through two parties: the franchisor and the franchisee. Both parties work under the same trademark and the same pre-established brand that has already gained popularity and recognition. The brand is created by the franchisor who then designs a business system to distribute their services or goods. The franchisee, on the other hand, pays an initial fee to be granted the rights to operate under this brand. In addition, they also pay a royalty fee which can be monthly or annually.

What is important to keep in mind is that a franchise is not an industry but a marketing and business method.

As such, the main purpose of a franchise is to facilitate sales and generate revenue for the brand and trademark that it represents. It does so by creating a network that expands through the reputation of the brand and the resources of others.

Once the brand is established, franchisors can sell units known as franchisees into different markets both national and international. The goal of every big franchise is to expand internationally and grow its network as much as possible. The expansion is usually possible through the resources of franchisees which lowers risks for the franchisor.

Both franchisees and franchisors are required to obtain the necessary permits that the countries require before expansion.

Why are franchises appealing?

Franchises are quite appealing because they are not micromanaged by franchisors and allow franchisees more operational freedom for as long as the integrity of the brand is not compromised. In addition, it gives new investors a platform on where to start their business as the brand and trademark are already established. This method allows them to grow their business faster and steadier.

Franchisors on the other hand can decrease their risks while increasing their profits thanks to the operational and management tactics of the franchisees.

Franchises are appealing to cities and governments too as they generate employment while also bringing in more tourists that are attracted to a certain franchise brand.

Starting a franchise business, however, does require capital as well as dedication. Every new investor must adopt the standard set by the franchisor and these standards can never be compromised.

If you are not sure on how to adopt the standard of a franchisor and how to get into this field, contact us at Zero HMT. Our hospitality company is one of the best in this industry and our team can help you navigate franchise waters with ease. We can talk you through the process of becoming a franchisee and what that will mean for you as an investor. Call us today!