Franchising a business means distributing a trademark of a business in return for some amount or a percentage in monthly sales. It helps in the expansion of business without considering the operational expenses. It can also minimize the risk and helps to concentrate in the growth of a business.

There are lots of difficulties with the franchise based business. Franchisors have to be more careful in selecting franchisees than appointing direct employees for the expansion of business. Incompetent employees can be more easily replaced than incompetent franchisees. Also incompetent franchisees can harm the reputation of the company.

On the other side franchisees also face lots of difficulties in carrying out business. They have to invest a large starting amount for the agreement without having any surety of financial success. Apart from the initial capital, large investment is required in Bookkeeping, Finance & Accounting etc. Although franchisee can use the trademark of franchisor, franchisee has very less control over the business.

The franchise agreement gives no right to franchisee to change the outlook, standard uniform, marketing materials or the price of any commodity. Sometime a small conflict between franchisor and franchisee can destroy the franchise agreement and can results into a long battle.

In UK, British Franchise Association is a self regulating governing body which helps in maintaining good relationship between franchisees and franchisors. The ‘code of ethical conduct’ adopted by BFA contains some clauses which all the members should abide by.

In US, Federal Trade Commission helps in maintaining healthy relationship between franchisee and franchisor. Disputes between them are solved under the jurisdiction of their state.

Franchise royalties are sometimes looked upon in a negative way in the eyes of franchise seekers, often simply because of the fact that their function in the franchise equation is misunderstood. There are several important points to grasp when it comes to franchise royalties, exactly what they are, and how they benefit both the franchisor and the franchisee.

Royalties are the franchisor’s portion of the income generated from the franchisees customers and clients. Simply stated, royalties are paid by the franchisee for the use of the franchisor’s proven system, support system, and brand recognition, which are then passed on to the customer.

Think of royalty fees as a monthly investment in your business that will contribute to a steady increase in sales over time. As the brand becomes more and more recognized as a household name, the value of the entire franchise, including your location, increases dramatically.

Support systems include top franchise executives providing top-notch, ongoing training and coaching in key areas of business, including advertising, marketing, and training. You, as a franchisee, are receiving precisely the tools required for operating a highly successful location for that specific franchise brand.

First-time franchise buyers often get confused about ongoing royalties, even going as far as viewing them negatively. However, as with all sources of revenue, clearly the royalty fee is collected from the customer. This is a crucial point to understand because it clearly shows that the customer is the one who ultimately pays for everything, including utilities, wages, and all other costs associated with doing business. Customers know that they can buy a Big Mac in Los Angeles or New York without even a trace of flavor disparity. This brand allegiance represents a huge benefit to a new or existing franchisee. Thus, the franchisee should want the franchisor to earn a significant amount of royalties because it indicates a strong and healthy franchise.

Franchise royalty fees generally tend to range between 3% and 9%. When you factor in the overall value you are receiving from the franchisor’s proven systems and brand recognition, you can clearly see that it makes good business sense to you, as a franchisee, to pay royalties.

Register for your Free Franchise Consultation. The Franchising Authority will help you find your perfect franchise! ]]> http://trongs.biz/the-truth-about-franchise-royalty-fees/feed 1 http://trongs.biz/advantages-of-franchises http://trongs.biz/advantages-of-franchises#comments Fri, 12 Dec 2008 15:19:08 +0000 admin http://www.trongs.biz/?p=118

Any individual that has started up a business on his or her own can attest to the difficulties of getting one’s name out in public and attracting customers. This is true regardless of whether the new business is a restaurant, a shoe store, or any other form of commercial endeavor. Because of this difficulty and the competition with known entities in whatever field, many small businesses don’t make. Fortunately for franchise owners, the difficulty of beating out the chains is mitigated by virtue of owning a franchise.

Quite possibly the most important advantage of owning a franchise is the name recognition. The established name recognition of a franchise provides a lot of instant business to any chain. Franchise names are trusted and are known entities, thereby increasing the number of people who will give the restaurant or new location a shot because they recognize the name and feel it is “safe.”

Another benefit of franchises is that they have the support of an entire huge business behind them. When a small business is linked to a big business, there is a high probability that the small business will do well because of the support of the established big business. The same thing applies here. The small business is the individual franchise owner and the big business tie is to the large corporation.

In addition, franchises have the advantage of not having to handle marketing of their restaurant or location on their own. The majority of franchises have national ad and marketing campaigns or at least regional campaigns to support their franchises. An advantage here is that the franchisee doesn’t have to go through the direct expense of buying the ad time on TV, printing up the individual flyers for newspapers and mailboxes, or any of the hassles of marketing his or her own business. The corporate office will most likely do all of that for the individual as part of the franchise fee.

Purchasing power is a huge additional benefit. The main corporation will generally make all of the contracts for production and then sell the items or supplies to the individual franchises. This again reduces the efforts of the franchisee while still ensuring that a supply will make it to the franchise. Supplies, equipment, toys, food, or anything that the franchise needs can generally be purchased through the franchise corporation as opposed to the franchise negotiating on an individual level with each supplier.

You may be sitting there asking yourself if you have what it takes to become a success if you buy a franchise. You have already looked into everything you needed to about the franchise itself, assessed your own goals and path and now, you wonder, can you really do it? There are many traits to successful franchisees that you won’t find in those who didn’t succeed. It does take a special type of person to be able to run a successful franchise- but it’s honestly not as difficult to adapt and become that kind of person as it may sound.

Being really focused on customer service. What? You may be saying that the franchise you are looking into doesn’t involve so much customer service. Perhaps you’re looking into supplying massaging chairs to malls, or something similar. But the truth is, no matter how hands off your franchise may be, you’re going to have to be doing some knocking on doors here. You’ll need to be able to be personable and still yet be able to handle some element of sales, even if it is only until you are able to hire someone to take care of those things for you.

Willingness to learn and grow. This one is key in working with any franchise, because initially, just like any other business you may start up, you will be needing to adapt to new changes. But also, you have the benefit of the franchise you choose behind you and generally they do have some proven techniques and training to help you along your way. Being flexible and able to not call all the shots is a very good trait to have, as well as knowing when you need to ask for help and being able to have that kind of solid communication with your franchiser to get it.

Dedication. This is probably the biggest aspect of running any business, and in franchising it is equally important. You’ll need to realize that you’re probably not going to just sign the contract and have the money come rolling in. You’ll have to pull up your sleeves and really give all your effort and maybe work some long hours. Getting things started is almost always a time where you are working a great deal more and still recovering from start up. So be patient with yourself, but stick to it, and you’ll find your success comes with your own determination.

Being able to succeed in franchising is not as easy as some would make it sound, no. However, anyone who looks at a franchise with a realistic eye is going to understand that there will be initial sacrifices and work to make things happen, as with any other business. Ask around to the successful franchisees in the franchise you’re thinking about buying and they will tell you that in the beginning, they worked harder than at any other time, but, they’ll also tell you it’s worth it.