What is Franchising?

By definition, Franchising it’s actually a business in itself, it’s a way of doing business.

Thinking about it more literally, it’s a marketing concept, a way of distributing goods and services at a wide scale, easily and quickly. It’s something that in Australia has gained significant traction, particularly with Australia’s growing small business sector.

The franchise business relationship is very different from other more typical relationships. The Franchisor assigns the rights to market and distribute their goods and services to an independent person (the franchisee). They also assign the right to the business name for the fixed period of time governed by the contract. It is defined by the International Franchise Association as “continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organising training, merchandising and management in return for a consideration from the franchisee”

“Business Format Franchising” is the literal definition of “Franchising”. There are a number of common business formats that define franchising and franchise relationships.

These business formats include:

  1. Manufacturer-Retailer: The retailer as franchisee sells the franchisor’s product directly to the public. (eg. New motor vehicle dealerships).
  2. Manufacturer-Wholesaler: Tthe franchisee under license manufactures and distributes the franchisor’s product (eg. Soft drink bottling arrangements).
  3. Wholesaler-Retailer: Tthe retailer as franchisee purchases products for retail sale from a franchisor wholesaler (frequently a cooperative of the franchisee retailers who have formed a wholesaling company through which they are contractually obliged to purchase. eg. Hardware and automotive product stores).
  4. Retailer-Retailer: The franchisor markets a service, or a product, under a common name and standardised system, through a network of franchisees. This is the classic business format franchise.

Product and Tradename Franchises

The initial two categories are commonly referred to as “Product and Tradename” franchises. In this arrangements is included the franchisees right to distribute and deliver the franchisors product within a particular region or territory. Usually this includes the owners identifying trademark, name or brand. This is then in exchange for fees and royalties.

Expanding on that, the business format franchise provides more than just the rights to a territory. There is a comprehensive functional business system delivered to the franchisee, through which they conduct their business. This includes things such as the business plans, marketing plans and even support for the execution.

At the heart of each good franchise is standardisation and consistency. Ensuring that each franchise looks and feels the same is pivotal.

Business Format Franchising

Today, the concept of Business Format Franchising is the fastest growing segment of franchising. It’s in almost every sector of business in Australia. Based on absolute numbers it has substantially more outlets, systems, employees and opportunities than the more traditional product and tradename franchises.

Unlike more common business models, the Business Format Franchising requires a unique relationship between the franchisee and the franchisor. It’s almost managerial. This is called the “commercial marriage”.

The ongoing relationship of the commercial marriage includes everything required to run the business, including the product, service, trademarks and tradenames. Often the entire business plan is included with all the operational standards, system and processes. This also then comes with the quality control, ongoing training support and supervision.

Put simply, it gives small businesses all the tools of a big business.

Win-Win

In the end it’s a Win-Win relationship where the franchisor gets to expand their market presence and network without having to spend a lot of more. And the franchisee gains all the access of the established business without the risk of starting up their own enterprise.

Ultimately the commercial marriage is actually a legal relationship between the two entities, but it has to be executed with much more care than that. All the usual full obligations and responsibilities are covered in the documentation known as the franchise agreement. The document always varies in length and contents but is at the heart of the system for both Franchisee and Franchisor.

The nature of the relationship means that the agreement will be weighted in the franchisors favour, this is quite natural because the franchisor must retain control over all the business processes, the branding and everything else that represents their business.

If you’re looking for the perfect franchise business for you and your family, look no further than JAN-PRO.