- Defining the franchising formula
- Mar 2021
Defining the franchising formula
With the franchising option gaining ground in India, there is a need to understand the core elements of what goes into building up a sustainable and profitable franchise chain
Franchising has indeed come a long way in India. It contributes USD 4 trillion to the world economy and around USD 35 billion to the Indian market. But still it is far from having become a mature industry. This is despite the fact that it offers modern ways to raise capital, helps in rapid penetration, provides an efficient way to combat operational challenges, makes brand building quicker, helps accelerate growth in the market reputation of the company, and leads to economies of scale. It is a given fact that there always are many hopeful entrepreneurs looking for opportunities to start their own business and therefore the question is whether a resource pool can be formed or we can build an ecosystem to offer help to such willing talent get on their way to becoming successful business people? In fact, the concept of franchising fits the Indian market well.
Types of FranchisingOther than the core types of franchising, including single-unit, multi-unit, master and area development franchising, there are other modes of franchising:
- Conversion Franchising: When the franchisee already carries on the same line of business as yours, and wishes to improve or expand by adding the benefits of your marketing and promotions with the existing infrastructure.
- Turnkey Franchising: The franchisor works with the prospective franchisee to set up an outlet and then hands it over to a trained franchisee for a fee.
- Job Franchising: Involving lower level of financial investment, a self-employed one-man operation-based service business.
Are You Franchise-Ready?There is a check list to know whether you are franchise-ready or not. That includes credibility, refined and successful prototype business, market conditions, differentiation, documented systems, capital, transferability of knowledge, affordability, commitment to relationships, adaptability, return of investments, and strength of management. To make organisations franchise-ready, the following elements are required:
- Opportunity Assessment: To understand what the opportunity is, to define the right approach and defining the target customer.
- Value Proposition: What are the differentiating factors, how well can the idea sell and determining the core drivers of the business.
- Capability Development: Ability to manage and train franchisees and the capability to support the expansion plan.
- Roll-Out: To define set territories to grow first so that the expansion strategy is in-sync with the growth plan.
- Strategy: Strategy is based on four strong pillars including financial feasibility, market competition, life of the business model, and control mechanisms.
- Financial: Financial planning is an on-going process that helps in reaching the financial goals of a business, determines proper investment plan by allocation of fundin various activities and takes into account resources, equipments and materials that are needed to achieve an organisation’s objectives.
- Operational: SOPs are detailed written instructions to introduce uniformity in the performance of functions. It helps in offering customers the same experience and service standards at a company or franchised outlet.
- Legal: It defines the rights and obligations of the franchisor and franchisee. It takes care of all the issues related to legalities, practice and operations.
- Marketing: It sets the list of activities directed towards building the brand including methods to acquire and target the right franchisees and highlights the medium adopted to attract their target groups’ ATL, BTL activities.
- Training: Training is an ongoing process for franchisees and employees. The essential workshops include franchise management workshop and elements of franchise development.
When Agency Problems Arise
Most brands are in a hurry to spread their reach by taking franchisees on board. The aim here is to maximise profits…
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