What is a Franchise?

I like coffee, a lot! 

And recently, when I was in a Costa ordering a flat white, it got me thinking about what a great example Costa or Starbucks is of a franchise.

So, in this blog, I’m going to explain what franchising is, how it works, and why it’s so popular.

If you’ve ever bought a coffee (or tea) from Costa or Starbucks, you’ve bought from a franchise. They look the same, they feel the same and the drinks are made the same. But, if you thought every Costa shop or Starbucks is owned by the same person (or company) then think again.

How is it possible for so many different people to do the same thing and look EXACTLY the same I hear you ask? 

Well, the answer is simple: franchising.

Okay, so first things first: what is a franchise? It’s basically a flexible, rewarding business that belongs to you.

A franchise is a business model in which a company (that’s us) grants the right to use its name, products, and processes to another person or business (the franchisee – that’s you!) in exchange for an initial fee and ongoing royalties.

So why would someone want to become a franchisee instead of starting their own business from scratch?  Well, there are tons of benefits to franchising. For starters, franchises have a much higher success rate than independent businesses. Like, a LOT higher. This is because the franchisor provides the franchisee with a proven business model and ongoing support, such as training, marketing materials, and product development. Additionally, because the franchisor has already established the brand and business model, franchisees can avoid the trial-and-error process that often comes with starting a new business. Franchisees also have access to the franchisor’s expertise and resources, which can help them navigate challenges and make informed decisions.

Now, let’s talk about how franchising works. When a franchisee signs a franchise agreement with a franchisor (usually for a period of 5 years), they agree to follow the franchisor’s guidelines for running the business (e.g. brand guidelines or other rules).

These guidelines typically include things like product specifications, marketing strategies, operational procedures, and customer service standards. In Costa or Starbucks, this might be how to make a Latte.

So why wouldn’t everyone start a franchise?

Well, there are costs. The franchisee is required to pay an initial franchise fee (which can range from a few thousand pounds to tens of thousands of pounds depending on the franchise). In addition to the initial fee, franchisees also pay ongoing royalties to the franchisor. These royalties are usually a percentage of the franchisee’s gross sales and are paid on a regular basis (e.g., monthly or quarterly). There may also be a marketing fee due.

So, why is franchising so popular? Well, for one, it allows entrepreneurs to start a business with a proven model and established brand name. Franchising also provides a way for companies to expand quickly and efficiently, without having to invest in new locations themselves. Franchising can also be a lucrative business for both the franchisor and the franchisee, as long as the business is successful.

In conclusion… it can be a great option for someone who doesn’t want to ‘go it alone’ from the beginning. While there are some costs and restrictions associated with franchising, it can be a lucrative and low-risk way to start a business and we reckon it’s one worth investigating!