Franchising presents an opportunity for swift business expansion, coupled with lower risk and minimal investment requirements. However, not every company is prepared to become a franchisor. Furthermore, if an unprepared company introduces its franchise to the market, such an offering is often viewed as unethical or even a sham franchise (i.e., an offer lacking genuine value). How can one determine if a company is ready to scale its business through franchising?
Let's outline the main criteria for assessing a company's readiness to offer a franchise:
Presence of a pilot point: A franchising network cannot be built if there is nothing yet in place that makes acquiring the business concept more advantageous than starting from scratch. It's essential to have tested the business idea through pilot points over a certain period.
Profitability: The cornerstone of any franchising system is the profitability of the franchisee. Since franchising entails revenue sharing between the franchisee and franchisor, the financial model must demonstrate high profitability. Typically, profitability calculations involve determining the investment amount, budgeting income and expenses for franchise points over several years, and estimating the potential return on investment.
After ensuring the profitability of the model for franchisees, the franchisor should also calculate the financial results of developing the franchising network for themselves. When developing the financial model, the franchisor should consider the ability to cover all of their expenses.
Costs associated with creating a franchising system:
Costs associated with launching a franchising point:
Costs associated with maintaining a franchising point:
Scalability of the business model: For a franchising network to emerge based on the franchisor's own points, the business model must be suitable for replication. Characteristics indicating this include:
The industry is subject to economies of scale and operates within a limited geographical region; Operational efficiency depends on the initiative of local managers; The brand reputation provides a significant competitive advantage; The business model can be standardized and codified.
Registered trademark and logo: As mentioned, transferring trademark rights is not a mandatory requirement for a franchise according to Belarusian legislation. However, the absence of protection for the name under which the network operates may harm the franchisor. The franchisor's brand may already be in use by another company, which may prohibit the franchisor and its franchisees from using the same designation. Therefore, during the preparation for launching a franchising program, the franchisor should take care to protect their name.
Trademark registration is a way to protect commercial designations (name, brand) from use by other parties. Trademark registration can be national (i.e., protection extends only to the territory of the owner's country) or international (protection extends to the territory of all countries specified in the trademark registration certificate).
Market research: For a network company to succeed as a franchisor, its concept must be in demand in two markets - the end consumer market and the potential franchisee market.
The end consumer's interest in the product/service offered by the franchising network allows franchisees to count on the demand and profitability of their business.
Key criteria for evaluating the end consumer market include:
