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What is Franchise Model and How Does it Work?

April 20, 2023

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What is Franchise Model and How Does it Work?


A couple of years ago, Dessi Cuppa was a sensation and chaps were scrambling to end their thirst through Dessi Cuppa. In fact, it was made it to be possible through the concept of the franchise ownership model, and thus popular brands such as KFC, and Fabindia, to name a few, were available easily in almost cities.

The franchise model is considered to be the best investment model through which a brand could be served by a franchisee with the consent of its owner or franchisor.


Franchisee-Franchisor Rapport


In franchise business economics, both stakeholders are responsible for making the brand successful. In the beginning, the franchisor provides all sorts of business tips, training, marketing tips, product development, etc for the franchisor and supports him with modern career tips. As the franchisee runs the business individually they get support from the franchisor. It is mutually beneficial too. When a new branch sets up by a franchisee, it is a sort of business expansion to a new location without much effort.


Types of Franchisee Ownership


There are mainly four types of Franchisee ownership:

  1. Single-unit franchisee: A franchisee having a single branch of the franchise is known as a single-unit franchisee. This type of investment is the most common type of franchise ownership.



  1. Multi-unit franchisee: As a franchisee is successfully running the branch, they can open more branches from the same franchisor. Such franchisees who have more than one branch of a franchise are called multi-unit franchisees.


  1. Multi-unit area developer: Multi-unit area developers are responsible for setting up a specified number of branches in a specified area within a specific time frame. 



  1. Market franchisee: Master franchisees are like the middleman between franchisee and franchisor. They are like multi-unit developers who are obliged to open a specific number of branches at any location in a specific time period.


Franchise Agreement and Related Sections


A franchisee and a franchisor agree on a legal binding before setting up a franchise between them. The agreement mentions the below sections that you need to address and understand.



Trademark Usage 


The main advantage of setting up a franchise business is the right to utilize known trademarks. The trademark section contains the list of trademarks and the logos that the franchise used. Keep this in mind while signing your agreement:

  • Trademark is in operation and well-known


  • Any restriction on the usage of these trademarks.



Franchise Location


The section contains the areas where the franchisees have a nod to set up a branch. It is to be confirmed whether you have the right to work in that specific area.



Franchise Terms


The section contains information about the length of the agreement. Keep in mind these points while you proceed:

  • How long the agreement exists.


  • Whether the franchisee has the right to the renewal of the agreement.



Fees For Franchise


The section contains all the information with regard to mandatory fees related to buying the franchise. Keep in mind the points regarding the sections:

  • What is the initial fee, and what will the franchisee receive in return for that fee?


  • How much is the royalty payment, what is it charged for, and the due date of the payment?



Responsibilities of the franchisor


The section contains all the duties and responsibilities that the franchisor is required to follow. These include:

  • Training requirements


  • Requirements regarding the participation in the business


  • Requirements regarding maintenance and submission of the records.



Restrictions Imposed


The section contains information on the limitations imposed on the offered products and services. The restrictions are :

  • Quality standards required and shared by the franchisor


  • List of approved suppliers


  • The approved sources of advertising and marketing


  • Working hours


  • Price of products and services


Agreement Renewal, Contract Termination, And Transfer Of The Agreement


The section contains all the information regarding the renewal, transfer, and termination of the agreement. It includes:


  • The rights that a franchisee has after the agreement termination


  • Detailed information about the transfer of franchise agreement


  • Detailed information related to the franchise agreement renewal


These are the basic guidelines to keep in mind when deciding to go with a franchise business model. The information shared here can help you to get an edge over the franchise works and lead you to a successful franchise business.







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