Understanding How Franchising Works
Understanding How Franchising Works
• FRANCHISING: Simply a method of marketing a product or service.
• FRANCHISE: Agreement. It’s the contractual arrangement between the parties.
Three types of franchise systems:
• Trademark
• Business Format
• Conversion
The Federal Trade Commission is responsible for overseeing and enforcing all franchise regulations but permits 13 States to enforce franchising within their own borders.
What constitutes a FRANCHISE? If you are going to offer a business opportunity and do is more than once, and there’s a written agreement, and these 3 things exists:
• Licensing a “Mark”
Trade Name, Service Mark, Trademark, Logo, Commercial Symbols
• Significant Controls & Assistance
Controls could mean such things as requirements to purchase from designated vendors or suppliers, quotas, territories, restrictions of what can be offered in connection with the business…
Assistance could mean a training program, on-going support, operations manuals, national or regional advertising campaigns.
• Remuneration
If the licensee pays the franchisor $500 or more during the first 6 months of the actual operations of the business it is considered a franchise.
Franchising Is Its Own Industry
Franchising is an industry composed of thousands of independent franchisors that have become extremely vital to the economy of not only the United States but over 40 other nations worldwide. Over the past half century, franchising has increased substantially in growth and recognition as a viable method of marketing for services and products. In the United States alone, franchising exceeds 1 trillion dollars to our economy.
The History of Franchising
The origins of franchising can be traced back to the middle ages (400 A.D. – 1500 A.D.). At that time, it was an accepted practice for local governments to offer important persons, even high church officials, a license granting them the right to maintain civic order and to make special tax assessments. Courts or lords could also grants rights to others to operate ferries, hold markets, and perform the business activities today carry out by professionals and craft guilds. The licensee (or franchisee) would pay the licensor (franchisor) a specific fund from the tax revenues collected or assessments made and in return receive military or other forms of protection.
Queen Isabella of Spain probably used (invented) a franchising system when she award Christopher Columbus a “franchise” in 1492 to develop travel and trade with the new world. It is fascinating that from the new world franchising would be introduced and re-established in the 20th Century.
Additional progress was made during the early19th century in England when tavern and pub owners, while experiencing financial hardship, turned to brewing companies for financial assistance. The tavern and pub owners in return for financial assistance were required to purchase all of their beer from that specific brewer.
In the United State, franchising developed in the 1850’s when the Singer Sewing Machine Company formed a franchise in 1851. Agents were commissioned to demo, sell, and repair the Singer line.
In the late 1889, Robert Metzger was the first franchisee of Ford…before him; Fords were sold directly from the manufacturing plant. Ford began establishing dealers under a license.
Rexall Drug stores – 1902
Western Auto – 1909
Howard Johnson – 1925
McDonalds – 1955
Kentucky Fried Chicken – 1955
International House of Pancakes – 1959 IHOP
Quick Franchise Facts, Franchising Industry Statistics
• There are an estimated 4,000 different franchisors (franchise business companies) operating in the U.S.
• There are believed to be more than 1 million franchise businesses in the U.S.
• The franchising industry and businesses employs over 20 million people in the U.S.
• In 2008, it was estimated that franchise businesses were responsible for over $1.5 trillion in economic output
• The franchise industry accounts for 50% of all retail sales in the US
• A new franchise business opens every 6 minutes of every business day
• Approximately one out of every 12 businesses in the U.S. is a franchise business
• Franchise fact: More than 76 different industries use franchising as a means to distribute goods and services
• The average initial franchise investment is $250,000- excluding real estate
• The average royalty fees paid by franchisees range from 4% to 8% of monthly gross sales.
• Most franchise companies have fewer than 100 units
• The average length of a franchise contract is 10 years
• Top franchise industry- Fast Food
• Top franchise company- McDonalds
Understanding How Franchising Works - To learn more about this author, visit Ken Hollowell's Website.
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To understand FRANCHISING you first must understand the words FRANCHISING and FRANCHISE.
• FRANCHISING: Simply a method of marketing a product or service.
• FRANCHISE: Agreement. It’s the contractual arrangement between the parties.
Three types of franchise systems:
• Trademark
• Business Format
• Conversion
The Federal Trade Commission is responsible for overseeing and enforcing all franchise regulations but permits 13 States to enforce franchising within their own borders.
What constitutes a FRANCHISE? If you are going to offer a business opportunity and do is more than once, and there’s a written agreement, and these 3 things exists:
• Licensing a “Mark”
Trade Name, Service Mark, Trademark, Logo, Commercial Symbols
• Significant Controls & Assistance
Controls could mean such things as requirements to purchase from designated vendors or suppliers, quotas, territories, restrictions of what can be offered in connection with the business…
Assistance could mean a training program, on-going support, operations manuals, national or regional advertising campaigns.
• Remuneration
If the licensee pays the franchisor $500 or more during the first 6 months of the actual operations of the business it is considered a franchise.
Franchising Is Its Own Industry
Franchising is an industry composed of thousands of independent franchisors that have become extremely vital to the economy of not only the United States but over 40 other nations worldwide. Over the past half century, franchising has increased substantially in growth and recognition as a viable method of marketing for services and products. In the United States alone, franchising exceeds 1 trillion dollars to our economy.
The History of Franchising
The origins of franchising can be traced back to the middle ages (400 A.D. – 1500 A.D.). At that time, it was an accepted practice for local governments to offer important persons, even high church officials, a license granting them the right to maintain civic order and to make special tax assessments. Courts or lords could also grants rights to others to operate ferries, hold markets, and perform the business activities today carry out by professionals and craft guilds. The licensee (or franchisee) would pay the licensor (franchisor) a specific fund from the tax revenues collected or assessments made and in return receive military or other forms of protection.
Queen Isabella of Spain probably used (invented) a franchising system when she award Christopher Columbus a “franchise” in 1492 to develop travel and trade with the new world. It is fascinating that from the new world franchising would be introduced and re-established in the 20th Century.
Additional progress was made during the early19th century in England when tavern and pub owners, while experiencing financial hardship, turned to brewing companies for financial assistance. The tavern and pub owners in return for financial assistance were required to purchase all of their beer from that specific brewer.
In the United State, franchising developed in the 1850’s when the Singer Sewing Machine Company formed a franchise in 1851. Agents were commissioned to demo, sell, and repair the Singer line.
In the late 1889, Robert Metzger was the first franchisee of Ford…before him; Fords were sold directly from the manufacturing plant. Ford began establishing dealers under a license.
Rexall Drug stores – 1902
Western Auto – 1909
Howard Johnson – 1925
McDonalds – 1955
Kentucky Fried Chicken – 1955
International House of Pancakes – 1959 IHOP
Quick Franchise Facts, Franchising Industry Statistics
• There are an estimated 4,000 different franchisors (franchise business companies) operating in the U.S.
• There are believed to be more than 1 million franchise businesses in the U.S.
• The franchising industry and businesses employs over 20 million people in the U.S.
• In 2008, it was estimated that franchise businesses were responsible for over $1.5 trillion in economic output
• The franchise industry accounts for 50% of all retail sales in the US
• A new franchise business opens every 6 minutes of every business day
• Approximately one out of every 12 businesses in the U.S. is a franchise business
• Franchise fact: More than 76 different industries use franchising as a means to distribute goods and services
• The average initial franchise investment is $250,000- excluding real estate
• The average royalty fees paid by franchisees range from 4% to 8% of monthly gross sales.
• Most franchise companies have fewer than 100 units
• The average length of a franchise contract is 10 years
• Top franchise industry- Fast Food
• Top franchise company- McDonalds
Understanding How Franchising Works - To learn more about this author, visit Ken Hollowell's Website.
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Stephanie RobeyStephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals. She is a successful entrepreneur having started and sold 2 companies and remains on the board of directors of the third, PhotoSpin.com Stephanie began her career in the direct marketing realm creating and producing direct mail for many of the major cable television companies and directly attributes her understanding of Internet marketing to those early offline experiences. Stephanie is a graduate of San Diego State University with a BFA in Graphic Arts and also holds an Executive MBA from the Graziadio School of Business and Management at Pepperdine University. Read Steph's Blog Meet Steph and Dave Sign up for our Free 7-Day BootCamp: Self Employed & Rich - Visit Stephanie Robey's Website |
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