Franchising - what is it?
Updated: Sep 5, 2019
Franchise Types and Your Business
Before starting a business, you need to carefully understand what franchises are.
The nature of the relationship between the franchisor and the franchisee can be divided into different types of franchises.
This is a standard franchise, which requires strict adherence to the rules of the franchisor, regular transfer of royalties, payment of lump-sum contributions. The organizing company critically evaluates all the actions of its partner, requires him to submit a monthly report, monitors the fulfillment of the terms of the contract, sets the trade margin and controls how much profit the point brings.
But on the other hand, a novice franchisee is quicker versed in business and passes the breakeven point. Unfortunately (or fortunately?) This type of franchise is not very common in Russia, since most entrepreneurs still prefer to run their own business, at least “almost”.
This type of franchise allows businessmen to "feel like owners." They independently resolve all issues related to the case, establish trade margins, and make sure that the business makes a profit. In fact, when working on a free franchise, entrepreneurs are the same dealers, they only have certain advantages over them. They are entitled to:
• use of the trademark of the company;
• work under her popular name;
• receiving free consultations from managers;
• passing trainings and courses conducted by the franchisor;
• good discounts on the purchase of goods manufactured by him.
And one more thing: the franchisee is given a ready-made list of trusted suppliers working under special conditions. The down payment is minimal, and royalties are small, which allows you to start a business without major investments. And most importantly: the company almost does not control the activities of the partner. Therefore, this type of franchise is common in the CIS.
This is the most expensive type of franchise, but also the most convenient. In this case, the franchisor provides the entire business "turnkey" for a certain rental amount. The tenant, that is, the franchisee, becomes entitled to conduct business as he pleases. The organizing company does not monitor its activities at all. The only thing that requires is that the partner ensure the proper level of profit. Note: this type of franchise is popular in Europe, but in Russia this format of cooperation is almost never found.
Franchise for rent
Here, as in the previous case, the franchisor organizes the business himself. He creates a company branch on the territory of the partner that meets all his standards. But he does NOT transfer ownership rights to the entrepreneur, but continues to carefully monitor all his actions. The franchisee conducts business and receives a percentage of the profits, that's all. In fact, he is an ordinary manager.
This type of franchise is also called "golden." It allows franchisees to resell the brand throughout the country, and not just in their region. Naturally, everything happens under the control of the organizing company. And one more thing: when working on such a franchise, an entrepreneur has the right to “occupy” a particular region. That is, to work in it alone.
This type of franchise implies strict control by the franchisor. It is he who controls the conduct of business and owns assets. An entrepreneur is not entitled to make decisions and do anything without the consent of the organizing company. At the same time, it is strictly forbidden to break the contract and create the same business on the territory, but already under a different brand. This is stated in the contract!
Import Substitute Franchise
This is the oldest type of franchise in Russia. Entrepreneurs on it worked back in the 90s of the last century. They took the idea of a brand, renamed it and started to conduct business according to a foreign concept. Only then it was illegal, but now everything is official, that’s the whole difference.
This is the last type of franchise on our list. He is in great demand. But not all Russian banks are ready to work on it. And if they do, they are very reluctant. Therefore, those who want to buy a bank franchise are lining up.