27 Aug REINVENTING YOURSELF TO BE YOUR OWN BOSS
| Modules 2 | FRANCHISE BUSINESS MODEL |
|---|---|
| 2.1 | Franchise business |
| 2.2 | How franchise fees are charged |
| 2.3 | How franchise purchase works |
| 2.4 | Franchise contract works |
| 2.5 | How franchise activation works |
| 2.6 | Advantages of franchising |
| 2.7 | How the franchise works for the franchisor |
| 2.8 | Secrets to have a successful franchise business |
FRANCHISE BUSINESS MODEL
The franchise model works from the sale of a brand to a third-party entrepreneur for a fixed period of time in a contract.
Franchising a brand, product, or service is the model used by companies to expand their field of action more quickly.
In practice, the company (franchisor) assigns to an entrepreneur (franchisee), upon remuneration, all its know-how, business plans, brand, and technology, for the opening of its own business in an exclusive or semi-exclusive regime in a given region.
How A Franchise Works
Franchising a business allows you to grow and generate a brand. The franchises allow you to gain purchase volume and buy cheaper. Growing up with franchisees who are highly committed to the business provides a more competitive team and savings in central structure costs.
In this way, profitability is gained. Franchising, therefore, allows you to create a brand and have more efficient costs.
The system franchises it is growing rapidly in all countries and has established itself as a formula for success in almost all business sectors. In markets such as the United States, it is estimated that it reaches 40% of retail trade, while in Spain, even though this percentage is lower, it grows at a rate of 20% per year.
The reason for this success must be found in that the franchise perfectly meets the needs of the current company. On the one hand, it allows small companies, which must compete with large corporations with much more financial resources, quickly access advantages of scale (brand, manufacturing, advertising, etc.) without having to commit large financial resources. On the other hand, in a constantly increasingly competitive and professionalized market, the small entrepreneur needs the support of a strong brand that allows them to gain a foothold in the market and guarantees greater chances of success in their business venture.
Thus, what began as a formula for manufacturers to ensure the distribution of their products, today responds perfectly to the needs of small companies to face the challenges of the future:
o Customer orientation to know and understand their needs.
o Agility to adapt to changes and anticipate demand.
o Marketing approach: merchandising, direct marketing, customer loyalty, etc.
o Control distribution seeking the collaboration of the entire chain.
o Oriented to quality and constant improvement.
How Does It Works
• Choice of brand and segment:
The entrepreneur defines what type of business he wants to undertake and chooses one or more brands to invest in;
• Selection process:
To buy a franchise, the entrepreneur must participate in the selection process. This process, in general, is quick and simple. The selection process is a way for franchisors to ensure that the interested party meets the expected requirements to buy a unit.
• COF and franchise agreement:
If approved in the selection process, the franchisee receives the COF and the franchise agreement. These documents must be calmly evaluated and signed only after being aware and clear about all the points set out in them.
• Franchise Documentation and Payment:
In parallel to step 3, the entrepreneur needs to send the company all the necessary documentation to sign the partnership and pay the franchise. For payment, each brand can stipulate different formats, such as payment in cash, installments, or even dilution during the contract term.
• Choice of place:
Here, the franchisee, if he has already defined the place of action in the selection process stage, must point and decide together with the franchisor where he will act. It is important to understand that before choosing a place, the entrepreneur must be aware of whether its operation will be exclusive or semi-exclusive. Furthermore, depending on the business model selected (digital or physical), the entrepreneur must comply with the current rules for opening a business.
• Training:
After completing the previous steps, the entrepreneur must participate in the franchisor’s training. Each brand acts differently; in some, the training is online and in others in person. Course length will also vary from brand to brand.
• Implementation and operation:
After completing the training, the entrepreneur is able to start operating the business. It is important to highlight that most brands divide the start of activities into stages (implementation, transition, and operation). This process is necessary to identify potential bottlenecks and scale the new unit.
• Support and follow-up:
After the franchise purchase, most brands start the franchisee support and follow-up process. This support continues throughout the term of the contract.
• Contract renewal:
In case of success of the unit and acceptance of terms of renewal between all involved in the process (franchisor, franchisee, and partners, if any), the contract is renewed at the end of the previous one.
HOW FRANCHISE FEES ARE CHARGED
Investing in a franchise has a much lower cost than owning a business. However, it is essential to understand that there are mandatory fees, in addition to taxes and permits, to be paid to acquire and keep the business in operation.
Reminder to the entrepreneur:
it is essential to assess the values of each fee and the required working capital to start the business.
1. Franchise fee
The franchise fee is the amount paid by the entrepreneur to the company to acquire the brand, have access to know-how, training, manuals, access to the franchisee network, and other elements that make up the purchase of the franchise.
When it is charged: when purchasing the franchise, How much is it: each company defines the amount to be paid, which can vary in a digital franchise from $ 5,000 to $90,000 and in a traditional franchise from $60,000 to $1 million, for example.
2. Royalties
They are recurring amounts, usually monthly, paid to the franchisor. These values guarantee the maintenance of the contract and other services offered by the company to the franchisee. When it is charged: monthly How much is it: it varies between 4% and 30% of the unit’s gross revenue; in some cases, it may have a fixed amount.
3. Technology or system fee
the fee is linked to the constant transfer, maintenance, and improvement of systems and applications inherent to the franchise’s operation. When it is charged: monthly How much is it: varies between 5% and 30% of the unit’s gross sales; in some cases, it may have a fixed amount.
4. Working capital
Although the amount is not configured as a fee to be paid to the franchisor, working capital is a mandatory amount for the franchise to operate with financial health until it starts to make a profit (break-even).
When it is charged: at the implementation of the unit, the amount is not paid to the franchisor; the entrepreneur must invest it in the unit itself. How much is it: varies from brand to brand and by characteristics such as population, competition, and seasonality.
5. Marketing Fund
The value of the Marketing Fund is invested in marketing campaigns applied to the entire network. In companies like Delivery Much, a study conducted by the marketing team shows 25% higher growth in units that participate in the fund. When is charged: monthly. How much can vary between 3% and 5% of the unit’s billing or have a fixed value?
In addition to these investments and fees, depending on the brand and segment chosen, other amounts, such as launch media or service fees, may be charged. To find out what the fees are for each business, the entrepreneur can check them in the selection process and also in the COF.
How The Franchisee Earns Money
The remuneration of each franchise is made according to the characteristics of the business. For example, in a kiosk or store, the franchisee is compensated for the sales made by his unit, whether physical or online.
In other formats, such as a delivery system, the franchisee is paid based on the commission of orders made by the platform he manages. As there is no standard of remuneration, it is interesting for the entrepreneur to seek information on how the remuneration of the franchise in which he intends to invest works.
Franchise Business Models
Serving the most varied segments and formats.
So, if you want to invest in a franchise and are unsure where to start, the ideal is to filter by segment and format and only then define a brand to invest in.
In other words, starting from this narrative line, you can start filtering for a franchise, observing the segments, and choosing the most suitable for your profile or for segments that are in high demand.
It is essential to point out that choosing a model based only on market numbers and niche moments can be a mistake. It must be remembered that after signing the contract, except for exceptions put in the contract, the entrepreneur will have at least 5 years of work with the chosen brand.
After defining which segment is the most suitable for your profile, the next step is to define which format is more attractive and necessary for your city or region.
The entrepreneur needs to understand that franchises fit into more than one format and, in some cases, into more than one segment.
For example, delivery Much configures itself as a p food franchise, but at the same time fits into technology, as it is a delivery franchise. In addition, the company is defined as a digital franchise and also a micro franchise.
HOW FRANCHISE PURCHASE WORKS
Once the segment, model, and brand to be invested have been defined, the entrepreneur must proceed to the business purchase stage.
It is essential to reinforce that, as, in any business, the more knowledge about the franchise system and the chosen market the entrepreneur has, the greater the chances of success of the unit.
From there, the purchase of a franchise follows (we will cover all the phases, even those already mentioned above):
• Identification of a business opportunity:
This step is essential because when identifying an opportunity, for example, the sale of chocolates, the entrepreneur must start the process of validating the opportunity and also understand aligning expectations with what the franchises offer as a business.
• Definition of place or region to operate:
Depending on where the franchisee resides, there may be no franchise availability. In this case, the entrepreneur can think and choose to invest in another business (segment or competitor) or even move to another city to start the operation.
• Selection of segment, business model, and brand:
As explained above, this step takes place in parallel to 1 and 2, and, reinforcing, the entrepreneur needs to seek as much information as possible before investing.
• Exchange and search for information about the sector to be invested:
During the prospecting process for a franchise, the entrepreneur must take the opportunity to extract as much information about the brand and the defined sector as possible.
Remember, although there is a selection process for each brand, the entrepreneur must also select the most interesting brand that suits his expectations.
• Participation in the selection process of the defined brand:
In general, as mentioned above, the selection process for franchises is fast and straightforward and, in its majority, consists of:
o Filling in the interest register
o Conversation with company consultants
o Information validation
o Franchise purchase
Precautions When Purchasing A Franchise
Within the process of buying a franchise, the entrepreneur needs to pay attention to the Franchise Law and the COF.
These devices are the guarantee for both the entrepreneur and the franchisee upon signing the contract.
Based on this, when buying a franchise, the entrepreneur must:
o Receive COF 10 days before signing the contract or paying any amount
o Have legal support throughout the purchase process
o Receive from the franchisee all the information provided by law about the franchise
o Receive training and everything necessary to start the operation
o Have support throughout the term of the contract
o Preference for contract renewal
o Be aware of amounts and fees charged
o Know all the responsibilities assumed with the franchise
In addition, the entrepreneur must be aware of the business that will be invested in. In the market, in addition to franchises, there are companies that license the brand.
HOW FRANCHISE CONTRACT WORKS
The Franchise Agreement is the legal instrument that proves the purchase of a franchise.
Most companies provide the franchisee with the contract attached to the COF. Both documents are extremely important and should be read calmly and with the help of a lawyer.
According to an expert, any doubts about the terms of the contract or the COF should be taken out before signing the contract to avoid future problems.
It is a detailed document; it is usually extensive and must contain all relevant information about the franchise.
Important: the franchise agreement and COF are not the same things.
When reading the franchise agreement, the entrepreneur must find:
o Network history
o Financial statements
o Adopted business model
o Registered suppliers
o List of network franchisees
o Type of support offered
o Details on exclusivity and territoriality.
In case any of this information does not exist, the guidance is for the entrepreneur to question the why with the franchise and validate the information with a trusted lawyer.
From there, the entrepreneur must pay attention to the length of the contract with the franchise. There is no minimum or maximum time by law; each franchise has the autonomy to define the ideal period.
The entrepreneur must understand that the contract term must be longer than the estimated period for the return on investment.
In addition, the composition of the contract must take into account the DRE (Statement of Income), a document developed based on information on fixed and variable revenue, taxes, and expenses of the operation.
Before issuing the DRE, it is necessary to take into account the business plan (Business Plan) that analyzes points such as: “the business model that will be franchised, its characteristics, size, team, initial investment, ideal location, public target, the performance of the competition, among others. This study will technically support the feasibility of applying the franchise system in the analyzed business.”
It is these data that will base the construction of a minimum period of the franchise contract.
For example, if ROI is built in 12 months, it is estimated that the minimum contract should be 5 years.
Another indispensable piece of information provided in the contract is the rules for renewal. In general, they are related to factors such as business management capacity, compliance with COF requirements, and brand maintenance.
In summary, to define a contract and renewal term, it is necessary to observe the company’s history and the peculiarities of each franchised unit.
How Franchise Activation Works
One of the most important post-purchase steps for a franchise is unit activation. It is here that the entrepreneur starts the relationship with his first customers and builds the brand in the chosen region.
For each business model, there will be an activation logic. For example, if your option was for a traditional franchise, activation will be linked to legalization and customization of the physical unit.
In this case, it is vital and important to pay attention to the bureaucratic processes for opening the unit, such as permits, hiring employees.
In return, when betting on a digital franchise, the activation concerns will be related and inherent to the business category.
For example, in a food delivery franchise, activation involves having the highest number of restaurants registered in the app on launch day.
Selection Of Commercial Point
Although more interesting for physical franchises, the choice of a physical location, depending on the business model, is also important for digital franchises.
And to choose the best point, the entrepreneur must take into account some points. Business feasibility analysis, that is, how much you can pay per m², so that the business is profitable and whether the point is destination or passage are initial steps.
Destination points are those where the public travels for the sole purpose of accessing them. Dealerships usually have this characteristic, as they need large areas, they end up staying in more out-of-the-way points in the city.
A commercial transit point is a point where there is naturally a flow of people in the surroundings, usually motivated by commercial and business centers, areas with a large presence of food establishments and other businesses.
In addition to understanding whether the business will perform better at a point of passage or destination, the entrepreneur needs to assess the profile of the public that transits the place where the business is set up.
A natural products store will be more successful in an area with several gyms, for example.
In addition, observing whether parking is available (own or nearby), an adequate façade for signaling the development are essential points for the unit’s success.
Advertising And Launch Media
Advertising is the soul of business! Jargon is hit and hit, but at the same time, following it can be the difference between a hit or a miss.
Each franchise will have a specific launch media model, and the entrepreneur needs to carry out the planning to obtain the best result in sales.
Another tip is to seek advice from experienced franchisees who work in cities or regions with similar characteristics.
There is very close monitoring with each new unit to be launched in the Delivery Much network in Brazil for instance. A launch strategy is designed for each unit, focusing on the user experience when making the first purchase and on retaining them as a customer.
For Vinícius Dambros, Marketing Director at Delivery Much, launching a franchise well means having a higher starting point, “something that will generally make the business move faster, both by generating cash and blocking competition.” emphasizes.
Furthermore, Dambros highlights the importance of investing in marketing and promotion, diversifying the offer, and seeking the greatest possible visibility of the business.
“In the first months of operation, the focus should be on acquiring customers, so that, over time, this strategy starts to share strength with the increase in the frequency of orders per user.”, he concludes.
How Franchise Management Works
The good management of a business is a crucial factor for the long-term success of the enterprise.
Unit management begins long before the unit is purchased, already in the opportunity identification stage.
In this step, the institution advises the entrepreneur to build a feasibility study. Henrique Krum, head of sales at Delivery Much, points out that it is vital to understand the business’s competitive advantages, the business opportunities and risks, and, furthermore, who are suppliers and distribution and logistics channels.
Commercial
In building your feasibility analysis, you should already predict actions and who will be responsible for the commercial area of your franchise.
Therefore, try to answer:
o who will be responsible for sales to the end customer
o who will be responsible for establishing partnerships with suppliers and distributors?
o Who will answer for the area as a whole?
Marketing
Like the commercial, marketing must receive special attention in the first months of operation.
It is clear that both areas should not be neglected in any period of the contract, but “the launch establishes the starting point of a unit and how customers perceive the brand in the first contact.”
Therefore, in addition to following the franchisor’s guidelines, the entrepreneur must be taking care to manage:
o Investments in digital media
o Investments in offline media
o Monitoring and maintenance of social networks
o Metrify campaign results
o Meetings and result validation with the franchisor
Financial
“to make money, you need to invest money”, and to invest more and correctly, the financial management of the franchise, as well as all other areas, must be oriented towards Dice.
In addition to controlling entries and exits, having an effective collection sector to avoid defaults, finance must understand, together with marketing, for example, which are the campaigns with the best results, so that investments are redirected.
In addition to good financial management, it is essential:
Know fixed costs, expenses, and income: the professional’s tip is for you to make a cash flow. “Consider the money you have available to start the business and set up future scenarios, mainly altering your revenue growth and default” completes Both.
• Read the Franchise Contract:
Reinforcing what we have mentioned above, knowing what the franchisor will charge every month is essential before signing the contract. Both explain that being aware of these values is important, as they are part of the business’s fixed costs.
Furthermore, it is vital to know the calculation basis for these costs. Remember, most of the values that a franchisor charges are in percentage; they are variable, but all have a minimum value.
• Manage and plan your working capital:
Having data transparently and easily accessible will help you create a more efficient cash flow. Understand and study how income and expenses will enter/leave your box throughout the month.
If you need tax, payroll, and credit card capital for the first 10 days of the month, you will need to have an account balance of that amount. “At the very least, in a scenario where your revenues start to come in from the 10th.” emphasizes Both and adds: “you can rebalance this. Negotiate with your customers to get paid earlier, and with your suppliers, so you can pay them later.”.
• Consider Taxes:
Every business has to pay taxes, and generally speaking, it can be said that they are levied on revenue. So, if you bill 10,000 in a month, you need to be aware that you can only use 9,000 to pay your obligations, fixed expenses, franchisor charges (allowing a 10% rate in this case, for example).
• Prepare for any scenario:
Every entrepreneur needs to plan for different scenarios, worrying about variables such as competition, market seasonality (throughout the year), specificity of the city where they will operate, default, etc. Based on this infinity of scenarios, Both advice is to draw how you would react with a growth of 10% per month, then with a neutral growth, i.e., 0 (zero), and then with a 10% drop in its billing, in addition to observing scenarios with an increase in default.
General and Administrative
More to the points highlighted above, the entrepreneur must be linked with managerial processes inherent to the chosen business. Each model will demand different attention.
For example, in an online delivery operation, it is necessary to closely monitor the progress of orders placed in the app, deliveries, and the satisfaction of the end customer and the restaurant as well.
In a traditional operation, for example, equipment rental, it is necessary to monitor the wear of materials and control inputs and outputs of equipment.
In short, each business will require specific management processes to get to know them; when contacting the chosen brand, try to understand all the business details and which processes will be supported or not, and how the franchisor can facilitate each process.
ADVANTAGES OF FRANCHISING
• Build a famous brand and sell more:
The benefit of advertising is to sell more. As a brand grows, it manages to have stores in the best locations in a city and a country.
The public knows the brand because they see the premises. This helps build consumer confidence and increases sales. In addition, franchise companies take advantage of the fact that many stores work with the same brand, being able to accumulate advertising budgets and run campaigns that help increase sales.
• It allows lower costs:
As it grows, the purchase prices are lowered, and the unit costs by distributing the fixed costs among more sales of more stores. This makes companies, when they grow, increasingly profitable.
• Greater speed of growth with fewer resources:
It allows reaching a higher volume of business without large investments since it is the franchisee and not the franchisor who invests. In this way, it enables companies with limited financial resources to increase their growth speed without affecting the firm’s indebtedness and thus reach the optimal size sooner.
This is especially important in businesses that need to achieve volume to access scale advantages: larger manufacturing series, advertising campaigns, logistics, etc. Growing up and doing it with outside resources is an exciting property.
• Smaller and more specialized staff:
On the one hand, the staff of the franchised establishments is unrelated, thereby reducing the risk of compensation and layoffs for the company.
And on the other hand, the needs for supervision and control also decrease since the franchisee himself supervises their workers. In this way, franchising companies tend to have reduced staff, specialized in key areas of the company such as marketing, research, design, etc., instead of having workers in management or control positions that generate much less value.
• Direct access to the end customer:
The franchise has allowed manufacturers to distribute their products directly without going through intermediaries. This entails the consequent cost savings that this entails and the improvement of distribution efficiency. But also, (and perhaps more important than cost savings), makes it possible to be directly in contact with the end customer, better understand their needs and react more quickly to changes in trends. This direct access to the consumer allows the use of more specialized marketing techniques such as promotions, customer loyalty, direct marketing, etc.
• Franchisees:
Highly motivated workers. One of the clear advantages of the franchise is that it has led to the incorporation of highly motivated people into the business.
In addition to dedicating many hours of work, it will greatly simplify management control since the franchisee will be the first to avoid waste and improve efficiency.
An organization made up of highly motivated people is more competitive than a low-motivated one. This is one of the main keys to why franchise networks are much more profitable.
How The Franchise Works For The Franchisor
The franchisor who has a successful business model and wants to grow needs to prepare and create his franchise by applying franchise techniques.
Then you must create a franchising organization that is capable of executing the franchise processes with excellence. Next, we review the 8 keys that you must fulfill to create a good franchise network:
o You must prepare to search for franchisees.
o Select the best franchisees.
o Select the best markets and locations.
o Train franchisees.
o Open stores as quickly and cheaply as possible.
o Help franchisees earn quick money.
Continuously train and lead franchisees so that they apply the model well and manage to satisfy customers and earn money.
You need to provide good core services, so franchisees have lower costs and outsell independent businesses.
The steps to the franchise are:
o Develop the franchise tools: The contract, the pre-contractual information dossier, and the franchise operations manuals.
o Implement central support services to the franchisee.
o Launch the franchise processes: expansion and operations.
o The services of the franchisor to the franchisee-franchisor services
How The Franchise To The Franchisee Entrepreneur
For his part, the franchisee entrepreneur must find the premises, hire staff, open the business and manage the new business.
Franchising is a business of the franchise itself; then, it requires attention and dedication to work.
The steps to successfully open a franchise as a franchisee:
o Analyze and decide which business sectors you like and can personally manage successfully.
o See what businesses are missing or fit your market.
o Know the best franchises in those sectors.
o Request and study in-depth the pre-contractual information dossiers of each franchise.
o Talk to the franchisees of each franchise.
o Value and compare franchises.
o See in the Mercantile Registry the results of each franchising company and franchisees.
o Secure the franchise by reserving the zone or pre-franchise agreement.
o Secure funding.
o Find the best location: by location and price. Know how much market there is in the good stores of the brand and what they are like, to find one like it.
o Sign the franchise agreement.
o Training well, paying the maximum attention.
o Execute the business reform.
o Search and recruit your team.
o Make a good launch campaign.
o Manage by applying the model franchise with effort, concentration, and dedication.
o Collaborate with the franchisor to take full advantage of the franchise. A franchise cannot do well in dealing with the franchisor.
SECRETS TO HAVE A SUCCESSFUL FRANCHISE BUSINESS
The franchisor invents a business, invests in everything necessary to open it:
o Graphic design
o trademark registration
o Local Decoration Project
o Search providers
o Find a computer program
o Prepare sales pitches and marketing materials
o Design work processes
o Find the place
o Look for the workers
o Make the reforms
o Open the store
It adapts the management model until it makes money or until it closes.
In the event that it is successful (only 20% of new businesses succeed), it is common for the franchisor to realize that if he opened a second store, he could buy cheaper, he could do more advertising to sell more, and also many fixed things would not increase, so it would be very profitable to open a second store.
In addition, he realizes that this second location would not cost him as much money.
The franchisor may realize that he can achieve the same advantages if he franchises the business, but without the need to invest himself in opening the second location or dedicating himself to managing it. The franchise gives you advantages without consuming the resources.
In return, of course, you must cede the benefit of the new premises to the franchisee who set up the brand.
If the franchisor decides to franchise, he must prepare the franchise: prepare the conditions, create the franchise dossier, the franchise Operations Manual and the franchise contract.
Once you have the franchise in place, you will need to look for good franchisees who have good potential.
For this, you will need partners who have demonstrated management capacity, investment capacity to open the business, and who want to open in a location with business potential.
The franchisor must attract these franchisees and correctly explain their franchise, and agree to the franchise channel.
Once the franchise agreement is signed, the franchisor must develop his franchise skills.
A franchise only works if it works well for the franchisor and the franchisee at the same time: it is a Win / Win agreement
o A successful business model with good products.
o A franchise offers well-planned and with good tools.
o A valid franchisor with good philosophy and that starts up a good head office.
o A franchisee capable of managing the business with motivation and dedication.
o A good location that can work.
o Train the franchisee so that he can manage the business.
o Supervise operations to ensure that the work system is applied for the good of customer satisfaction, brand homogeneity, and the franchisee’s own profitability.
o Lead the franchisee to do what they should do.
o Execute the central services of the franchise: marketing, R&D, purchasing, logistics, information systems, etc.
>In addition, the franchisor must develop its expansion skills:
o Search Candidates
o Process stakeholders to find the best projects
o Budgeting projects
o Finance projects
o Sign premises
o Sign works
o Coordinate the works
o Coordinate the assembly of premises
o Open premises
o Launching new stores
For its part, the franchisee, an entrepreneur who wants to start a business but is aware that doing so only has a high risk and is alone in the face of danger, the franchise is considered as a way to start a business that is already proven and that you can take advantage of the services that the network already has.
The new businesses have a risk of 80% to close before 5 years. The risk in the franchises is low, but be careful; it is not zero. The risk drops to a level of between 40% of failures and 5% in the most experienced franchises. Going from 80% to 40% is taking less risk, but 40% is still considerable risk. In business, there are no guarantees of success.
If he agrees with the franchisor, the franchisee will be able to benefit from a lower investment than if he set it up alone.
In addition, you will have less development work and less difficulty to start up. This will help you to break even faster. All this if the franchise is well set up. Be careful because there are many badly set up franchises.
With the franchise open, the franchisee will be able to focus on serving their customers and managing the operations of their unit. This will allow you to be more commercial and customer-focused while enjoying the help of central services.
An independent entrepreneur must take care of absolutely everything. While a franchisee delegates several functions to the headquarters: marketing, purchasing, etc.
If the franchise is well set up, the franchisee should have lower costs than if he were alone on his own.
He should also sell more within a chain than what he would achieve alone. The combined effect is that the franchise is more profitable than what an own center would be, even after paying the economic conditions of royalties, fees, and advertising funds.
This is only true if the franchise is well set up and cared for because there are many franchises that do not meet this essential point.
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