Nov 15, 2022
The Franchise Business Model: How to Build your Brand

Want to be the next Pizza Hut, KFC or McDonalds of the world but unsure how to build a very strong franchise model for your brand? Fret not, in this article we will discuss a few useful tips that can help aspiring food and beverages brands metamorphose into giant billion dollar brands. Before we get into establishing a franchisee model for your restaurant chain, let us look at the franchisee model, what it means with some real-world examples.

The Franchise Model

The franchise model is a business model where a brand that is looking to expand and scale itself to other markets and new areas, gives permission to franchises to sell the products of the brand. The profits from the sale of the products will be absorbed in part by the franchisees and there is a royalty fee that a franchisee will pay the franchisor too. The joint venture between the franchisee and the franchisor is referred to as a franchise.  

A Brief History of the Franchising Model

The franchise business model is common in very competitive sectors such as fast food, video rentals, and auto rental services. After the Civil War, the model made its debut in the US, and from the 1950s through the 1960s and into the 1990s, it grew in popularity.

The top brands in the world are large franchisor corporations like McDonald's, Dairy Queen, Taco Bell, Denny's, Jimmy John's Gourmet Sandwiches, Subway, 7-Eleven Inc., Anytime Fitness, etc. That’s how popular the concept of franchising has become.

The franchising concept has been successfully used by several small firms in the US to expand into national chains and even establish a presence in places outside the US such as Europe, Canada, and China. On the other hand, foreign franchisors use franchises to enter the US market, paying franchisees in the US mainland with their own money.

A note on the roles 

Remember that the role of the franchisor as opposed to the franchisee is that of an advisor and an advisee. Each has a role to play to ensure that the partnership remains strong and the business benefits derived from the partnership are mutually inclusive. They both also have the shared responsibility of protecting the terms of the franchisee-franchisor agreement. 

Raise enough capital

This is where the train starts; without the necessary capital, you cannot expect your franchise to be successful. And this is at the beginning. But due to the nature of the business model, at later stages of development of the brand, the initial investment becomes more worthwhile. This is because continued expenses get distributed among franchisees.

It is also possible at later stages with better analytics software to gain greater visibility into how well your franchisees are performing and how they can improve. This way you can suggest remedial measures in time, which could save your business in the long run and turn profits for you.

Once you have raised enough capital, which is the necessary first step for any venture, then you must do these necessary things before you can grow your brand’s franchise network. 

The 4 steps to a brand franchise network

1. Identify your niche

What is your goal as a brand owner looking to establish a franchisee network? That’s easy to guess - increase the number of franchisees. You can get there by distinguishing yourself as a brand in the market. The first step to do that is to identify your niche. 

As a restaurant, would you be selling burgers or pizzas? Which one of the two does the customer prefer? Or would you take the ‘Subway route’ and popularize your healthy sandwiches? Identify what works best for your target market. And also look at how best you can project the branding creatively to the customers.

2. Build your unique product

Building a unique product is crucial to your success. If you are selling sandwiches, there would be a hundred other brands doing the same and many of them in your vicinity. How do you ensure that people buy from you and keep coming back, becoming loyal advocates for your brand? 

As more franchisees join after being impressed by your product, even more sales will happen. As your sales figures go up and reputation improves, you get more franchisees who would be attracted to your product. This will make your brand even more successful.

3. Outline clear requirements for your franchisees

Stay in the game by monitoring how your franchisees are doing and giving them feedback when necessary. Franchisees must maintain the franchisor’s business model in their operations across locations. 

They must also satisfy certain other statutory requirements such as logo, signs, and trademark symbols in places of prominence on the franchisee’s grounds or building. Please note that the franchisee does not pay for any marketing efforts that are undertaken by the brand at a higher level. 

 There can be franchisee-specific branding or marketing material but all such branding or marketing material can only go through with the permission of the brand. Franchisees can also benefit from such marketing campaigns undertaken by the brand. 

4. Outline clear incentives for your franchisee employees

A successful franchisee model gives freedom to franchisees to do the best they can for themselves and for your brand. Brands must give them enough incentives to do the best they can for themselves. 

Some of the incentives that you can offer your franchisees are performance and guest satisfaction bonuses, time bonuses (for coming in early) and overtime bonuses (for working beyond work hours). 

Apart from this, you could also offer them experience rewards, based on how long they have been working with the franchisee. It is the brand’s responsibility to award bonuses and you cannot sell yourself short here. Employees work just as hard or harder to make your brand tick.

5. Strict compliance with regulatory or legal requirements

Lastly, the franchise business model is affected by compliance from country to country. When you are in Europe the laws governing how brands may leverage a franchise model may not be as brand-friendly as those in the USA. 

You must see how you can legally comply with any requirement that is placed in front of you when you move to a new country. Legal and financial consulting along with actual reviews from brands who run franchises successfully will go a long way in understanding how to approach this issue.

Closing words

Brands who establish themselves on a franchise business model have an advantage over other brands. The franchise model allows franchisors to expand their business easily with the money they get from franchisees. This can be used to strengthen operations at the corporate headquarters, train and support the franchisees, spend money on marketing and advertising, and improve the quality of goods and services. 

To handle the daily operations in a franchise model, brands can also use Delightree’s own franchise management application. The application will share your business playbook, SOPs, and training materials with franchisees, bridging the knowledge gap that may exist. The only concern then would be that of raising the money initially from digital lenders. Its comforting that you can recover the initial amount from your franchisees too! Therefore as a brand, we see no reason why you shouldn’t explore the franchise model.

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