The franchise

business model
 A franchise enables you, the investor or franchisee, to
operate a business. You pay a franchise fee and you
get a format or system developed by the company
(franchisor), the right to use the franchisor’s name for
a specific number of years and assistance. For
example, the franchisor may provide you with help in
finding a location for your outlet; initial training and
an operating manual; and advice on management,
marketing or personnel. The franchisor may provide
support through periodic newsletters, a toll-free
telephone number, a website or scheduled workshops
or seminars.
 Owning a franchise comes with defined costs,
franchisor controls and contractual obligations.
 Franchise contracts are complex and vary for
each franchisor. Typically, a franchise
agreement includes three categories of
payment to the franchisor. First, the
franchisee must purchase the controlled
rights, or trademark, from the franchisor in
the form of an upfront fee.
 Second, the franchisor often receives
payment for providing training, equipment,
or business advisory services. Finally, the
franchisor receives ongoing royalties or a
percentage of the operation's sales.
 Advantages
 There are many advantages to investing in a franchise,
and also drawbacks. Widely recognized benefits include
a ready-made business formula to follow. A franchise
comes with market-tested products and services, and
in many cases established brand recognition.
 Disadvantages
 Disadvantages include heavy start-up costs as well as
ongoing royalty costs. To take the McDonald’s example
further, the estimated total amount of money it costs
to start a McDonald’s franchise ranges from $1.3
million to $2.3 million, on top of needing liquid capital
of $500,000.
 Pros
 Ready-made business formula
 Market-tested products and services
 Established brand recognition
 Large decisions already made
 List of approved suppliers
 Cons
 Success not guaranteed
 Large start-up costs
 Ongoing fees
 Lack of territory choice
 What Are the Advantages of Franchises?
 Some of the widely recognized advantages of
franchises include a ready-made business
formula to follow, market-tested products and
services, and, in many cases, established brand
recognition. For example, if you're a
McDonald's franchisee, decisions about what
products to sell, how to layout your store, or
even how to design your employee uniforms
have already been made. Some franchisors
offer training and financial planning, or lists of
approved suppliers; however, despite these
benefits, success is never guaranteed.
Dell case study
 Dell's is a legendary business success story. A
student who builds computers in his college
dorm in 1984, invests $300,000 supplied by his
family to start selling his own line of
computers direct to consumers, creating a
company grossing over $73 million in its first
year of tradinnj
 Expansion to Ireland and elsewhere brings a
market capitalization to $80 million by 1988,
with Fortune magazine including Dell
Computer Corporation in its 1992 list of the
world's 500 largest companies. By 2011,
Michael Dell is the 44th richest person in the
world, with a net worth of US$14.6 billion.
 Dell, Inc. today is an American multinational
information technology corporation based in
Texas that develops, sells and supports
computers and related products and services.
 By organic growth and acquisitions ( notably
Alienware in 2006 and Perot Systems in 2009)
Dell has become one of the world's largest
technological corporations, employing over
103,300 people.
 Dell sells personal computers, servers, data
storage devices, network switches, software,
computer peripherals, HDTVs, cameras,
printers, MP3 players and electronics built by
other manufacturers.
 Points to Note
 Innovative marketing, selling direct to
customers over the Internet.
 Investment in supply chain management
(probably more a private industrial
network) increases efficiencies
 Increasing focus on technology, speedy
delivery and lowest prices to become
market leader.
 Appearance of a more friendly, 'customer
first' website to meet changing market
expectations