How does franchise business work?

There are two elements in the franchise process: one is the franchisor, and the second one is
the franchisee. As everybody knows, that franchise business is different from other
businesses, because, in this type of business, an international company (Franchisor) opens
their company branch on the same name, but under other's (franchisee) supervision.
This franchise business works in different concepts. The franchisee gets structural, legal,
conceptual, and advance training help from the franchisor, and gives royalty charges to the
franchisor.

Both the franchisor and franchisee gain benefits from the franchise business. When the
franchisee gets control over the franchise with the practical and legal support of the
franchisor, then the franchisee can work independently. After establishing a franchise
business in other countries, the franchisor can expand business and revenue with the help
of the franchisee.

Before proceeding with the franchise business model, it is essential to take care of legal
documentation. Such a type of business model is secure for both because both parties have
promoted the brand. And both can gain significant benefits from it.

Some significant types of franchise business in India: Many franchise business types own
well-known brands and expand in India. Indian market is vast and open for everyone, so
international companies approach Indian people to connect with them for open franchise
business in India. These types of franchises business are as follows -

1. Manufacturing franchise
In this case, franchisees are free to produce the same products with the legal authority and
promote it in the market with the owner's confirmation. The franchise can also give
advertisements in national broadcasts and other mediums of promotion of his
manufactured product.

In this model, the franchisor company will provide franchise fees and all-expense incurred
by franchises for manufacturing the product. The specific business has allowed doing such
types of a franchise that add all conditions in the agreement. The food and beverage
industry is an excellent example of such a type of franchise business.

2. Product franchises
Product franchises are different from other franchise businesses because, in this type of
business, franchisees use contracts to decide the distribution of the products. It works on
the supplier-dealer model in which franchisees distribute franchisor’s products. Franchisors
only give their brand name to the franchisee.
For example – If the franchisee manufactures the cake and gives the name to the franchisor
brand, the franchisee can distribute the cake where he wants to sell it. The franchisor will not
influence him.

The franchisee will pay some amount to the franchisor mentioned in the agreement.
Such franchise businesses usually deal in significant products like vending machines, car
spare parts, equipment, etc. Such types of franchises give big sales and excellent benefits.

3. Business franchise ventures

Business franchise ventures are such a type of franchise business where franchisees
purchase products or services from the franchisor and sell it. The franchisor will provide
customers leads those franchisees have to maintain for future trade. The best example of
such a type of franchise business is vending machines. The franchisee purchases it from
the franchisor and sells it to the customer with the service promise after the sale.

4. Business format franchise

It is the most popular franchise business in India. In this franchise, the business franchise
gets a proper business structure made by the franchisor. The franchisor will provide
appropriate training to keep the business going and get a royalty fee against it.

The franchisor is also liable to provide product and raw material frequently without
compromising the product quality. Everything will be mentioned in agreement which can
help both sides to proceed with their business. It is the safest way to do franchise
business. The best example of such an industry is retail, fitness, fast food, business services,
and restaurants.
5. Investment franchise
This is a high-level franchise business because it needs a massive amount of
investment. Usually, franchisees invest money in it and hire their own staff, or else
franchisors help franchisees for investment and benefits from it. Examples of such franchise
business are restaurants and hotels.

6. Job franchise business

This is a low-cost franchise opportunity; it means the franchisee can run it from
home. Anyone can start a franchise business alone and begin a job franchise
business. Such types of franchise are generally handled by one person, and they ensure the
selling and purchasing of the product. Usually, franchisees are required to buy small
quantity stock and a vehicle for distribution. Job franchises businesses are widely spread
everywhere; some examples are – coffee vans, drain cleaning, travel agency, commercial
cleaning, domestic cleaning, real estate service, event planning, mobile phone part
repairing, and many more.

7. Conversion franchise
Conversion franchise is an adjustable relationship between the franchisor and the franchisee
in which many models exist for building a business as a trademark. This type of business
develops in the franchise industry and takes all training programs, marketing, and
promotional programs in franchise units. In this way, franchisors gain more royalty fee and
ensure the growth of the brand. Examples of conversion franchises are home services, real
estate brokers, etc.

Conclusion
Many franchise business models provide lucrative deals for franchisees and franchisors. The
Indian market is open for all types of business, and franchise business is one of the hot
business ideas in India. Small and big companies open their franchises to get royalty fees
and establish their brand in other countries. The most important thing to understand is that
a franchise business depends on recall value, brand name, market, etc. Investment is a
must, whether it is in a small amount or a significant amount. If you get success and grab  a
franchise opportunity, you need to investigate all factors and demand of the product and
services.

Franchise Business India

 There were several constraints to Foreign Direct Investment in India up to a decade back.
 At that time, the most legalised way for any brand to enter India was through the franchise
route. Hence, several global brands such as McDonald's, Dominos, KFC, Levis, Baskin
Robbins had made their way into the Indian market through the franchise route.
  These global brands joined hands with established business houses in India and gave them
the master franchise of their brands.
 These master franchisees then expanded the brand presence all over the country by
appointing franchisees. 16 percent of the Indian franchisors comprise global brands.
 It was also around the same time that India’s retail sector was experiencing an overhaul.
 It was the time when the retail sector had started to become organised.
 Franchising has been instrumental in making this transition happen most profoundly.
 It helped several global brands to become household names for Indian customers.

Pros And Cons Of Franchise Businesses

Franchising has so far been the most widely accepted business expansion model in the
majority of the countries including India. In most cases, it has also proved to be a win-win for
both franchisors and franchisees. However, the chances of failure can’t be denied
completely.

As there has been a surge of brands opting for the franchise route which has been
complimented adequately by the rise in the number of investors interested in taking up
franchises, there have been countless failed franchises as well. It is indeed important to read
the fine lines of the agreement before deciding which franchise to buy. Let’s now take a look
at some of the franchise advantages as well as disadvantages that both the franchisor and
franchisee should keep in mind before signing the franchise agreement.

Pros
 It allows working independently.
 Comes with the guidance and established network of an already successful brand
 Franchisors give proper training to the franchisee and his staff in business operations.
 The franchisors have set guidelines in regards to every aspect of the business that the
franchisee has to merely adhere to.
 The franchisor has established brand image and marketing campaigns designed at the
national level which accentuates the chances of success for the franchisee.

Cons
 Even as you run a business, you have to be accountable to a big boss and abide by his terms
and conditions. Each and everything is set by the franchisor and there not much scope of
creativity for the franchisee.
 The royalty and franchisee fee have to be paid from your revenue which can become
frustrating at times, particularly if the business is not making as much money as expected or it
is running at a loss.
 Just as the established franchise network helps to get the benefits of the brand recall, it turns
out to be equally detrimental if any franchisee has faltered to keep up with the brand image.
Just as the credit is shared, in the same way, the discredit or bad reputation of a few
franchisees impacts the customer’s response towards the rest of the franchisees.
8. Franchise Opportunities In India
India has always been a sweet spot for global brands. Even a lot of national and regional
brands have successfully expanded their business network through franchising. There are
34% national brands and 50% of regional brands that franchise their businesses. Currently a
contributor of 1.8% of the Indian GDP, franchise business is poised to make a contribution of
5% to the country’s GDP by 2025. There are 4,600 franchisors in India, 2 lakh franchise stores
that are owned by 1.7 lakh franchisees.

The sectors that are driving growth in franchise business include Food and Beverage,
Fashion and Retail, Grocery Retail, Healthcare, Wellness, and Education. Tier 2 and Tier 3 cities
have shown dramatic response to franchise formats both in terms of investor’s interest as well as
customer loyalty. First-time business owners, women, fresh graduates who have least or no
prior experience of running a business are showing more interest in taking up franchisees.
This apart, there are seasoned business owners as well as consultants who take up franchisees
as a side hassle if they have some extra cash that they want to invest in a low-risk business
outfit.
How Does A Franchise Model Work In India?
1. The franchise business is gaining so much popularity these days.
2. This is because business-loving people like to own a franchise, and there are many risks
involved in starting a business from scratch.
3. New businesses face a lot of challenges in the initial stages - make a brand name, make the
new products ready for the market, and create an operational system.
4. It needs patience and hard work for many years to gain a position in the market.
5. On the other side, franchising has many benefits over starting a business from scratch.
6. These benefits include enough support from the franchisor and already existing brand name
in the market.
7. If this franchising concept interests you, and you plan to buy a franchise, it is necessary to
understand the franchise model.
8. In this article, you will know the insights about how the franchising model works.

What Is A Franchise, And How Does it Work?

 A franchise is a kind of business owned by a person called a franchisee under the brand,
trademark, and business model owned by a company called the franchisor.
 In simple terms, a franchisee operates a business by using the brand name and trademark of
a franchisor.
 So, both franchisee and franchisor have a commercial and legal relationship with each other.
 In the franchise business model, the franchisee uses the brand name of a franchisor, and in
exchange for that franchisee sells the products and services of the franchisor.
 Also, a franchisee pays the fee and signs an agreement with the franchisor.
 After all the legal formalities, the franchisee can open a new branch of the company.

Franchisee-Franchisor Relationship
1. In the franchise business, a franchisor and franchisee hold a strong relationship responsible
for the brand's success.
 2. Initially, the franchisor helps the franchisee by providing the training, marketing, product
development, and sometimes offering loans.
3. As the relationship continues between the two, the franchisor provides enough support, so
that the business of the franchisee grows continuously.
4. This franchisee-franchisor relationship benefits both.
5. The franchisee runs the business as they are holding it individually while getting the benefits
of regular support from the franchisor.
6. On the other side, the franchisor obtains a new branch and expands its business to a new
location and area.
7. It gives franchisors to gain benefits without spending for the business at a new location.
8. This franchising business also benefits the customers as they can get a big brand's products
and services in their local area.

Types Of The Franchisee Ownership

Franchisee ownership is of the following types:

1. Single-unit franchisee: A franchisee having a single branch of the franchise is called a single-
unit franchisee. This ownership is the most common type of franchise ownership.
2. Multi-unit franchisee: When a franchisee is successfully running the branch, they can choose
to open more branches from the same franchisor. Such franchisees who own more than one
branch of a franchise are called multi-unit franchisees.
3. Multi-unit area developer: Multi-unit area developers are responsible for opening a specified
number of branches in a specified area within a specific time frame. The franchises follow this
approach to expand their footprints in the varied market.
4. Market franchisee: Master franchisees are like the middleman between franchisee and
franchisor. They are like multi-unit developers who are obliged to open a specific number of
branches at any location in a certain time period. But the only difference is that the master
franchisee can sell the franchises to other franchisees too.