The ingredients for developing a franchise:
- providing a brand and distinctive signs,
- transmission of identified secret and substantial know-how,
- a collection of products and/or services,
- continuing assistance, which may be commercial and/or technical.
The Franchisor, who, through one or more pilot points of sale, has developed a concept, and who has the advantage of experience, will transmit their know-how to the franchisee. The aim is to pass on the keys to success to the franchisee so that the latter may repeat the success enjoyed by the former.
That said, the franchisee remains an independent entrepreneur, responsible for their own success as well as their possible failure.
Franchisor and franchisee remuneration policy:
The franchisor is generally paid by way of entry rights that the franchisee pays when they join the network, then by licence fees (also known as royalties) which relate to a percentage of the franchisee’s turnover and/or a fixed amount.
The advantages of a franchise:
This mode of development allows the franchisor to keep control over the creation, growth, coordination and image of their network, without having to bear either the weight of the investment involved in opening points of sale, or the risks related to operating them.
From the franchisee’s perspective, they benefit from the franchisor’s know-how, experience and assistance, while at the same time retaining complete managerial and operational independence.
Being a franchisor isn’t at all an easy life: the franchisee must first of all be trained to pass on know-how to them. Next, the franchisor has to assist the franchisee, in particular by spending time with them, advising them on putting the concept into effect, and making sure that their know-how evolves to make sure in particular that they are always in line with customers’ expectations.
A balance must be struck between assistance and the franchisee’s independence: a lack of assistance or too much interference can give rise to liability and severe sanctions, for example by application of the labour code.
For their part, even though the franchisee remains an independent entrepreneur, they must nevertheless agree to put into effect the franchisor’s know-how.
Indeed, some catering network franchisors (fast food or seated catering) consider it preferable to select a franchisee who has no experience in catering than an experienced cook, because the former will be more inclined to follow the recipes provided by the network head whereas the former might wish to do things their own way.
Although it is often perceived to be an easier option than direct development, launching a franchise involves in reality significant preparatory work: the franchisor must already have experience ideally covering at least two financial years, and must furthermore have formalized the support documents used for passing on know-how.