Franchising

Franchising

Franchising as a business model

Franchising is the grant of specified rights by one party to another in return for a fee, and exists in various forms. We focus on the business method franchising, under which a franchisor (A) grants a franchisee (B) a licence to distribute A's products or services, using A's business method and technology and under A's trade marks. A supervises that use, and provides training and other assistance (eg publicity) to B to help B in running the franchise. A franchise is thus a licence to use a business method for a period, subject to a royalty.

Many businesses use franchising. It is common in the fast food sector (eg McDonald's), hotels (Holiday Inn), utility services (Dyno-Rod) and retail products (Body Shop). Not all businesses, however, are suitable for franchising.

For general franchise considerations, see: Franchisor considerations when setting up a franchise—checklist, Advantages and disadvantages of franchising from a franchisor’s perspective—checklist and Advantages and disadvantages of franchising from a franchisee’s perspective—checklist.

Potential franchisors should consider the advantages and disadvantages of the franchising model against alternative routes to market such as agency or distributorship.

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