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Franchising is a joint venture business. In this business model, an owner or the franchisor allows an individual or group to run a business using their name and trademark. The franchisee has to follow the business model of the particular franchise and share a part of their sales revenue with them. Franchise business models are becoming one of the most popular types of businesses in recent times.
To learn more about this marketing model, continue reading!
This introductory paragraph gives you an idea about what a franchise is and how it works. Let us now understand how franchises are in detail.
Generally, when a business wants to increase its market share or establish a broader reach, it franchises its brand. This is a cost-efficient method of marketing and distribution. In most cases, entrepreneurs use this business model.
The types of franchising business models are mentioned below:
The franchise business model demands a strong relationship between a franchisor and a franchisee, which benefits both. The following points will give you a glimpse of their relationship:
Four types of franchisee ownership are as follows:
In simple terms, the franchise agreement is a legal document that contains specific fundamental rules and regulations. The relationship between a franchisor and a franchisee is based upon this agreement.
Here are some aspects that a franchise agreement covers:
As we have already read how the franchise business model works beneficially for both a franchisor and a franchisee, let's dive into its benefits. Moreover, the following section is divided into two parts for an easier understanding.
Although franchisees and franchisors benefit significantly from this business model, there are also some serious drawbacks. For example, huge start-up costs, ongoing royalty charges, etc. So, to conclude, a franchise business model is based on principles that two parties follow. One is a parent company; the other buys rights to sell the franchisor's products and expand the business.